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Understanding all about Dividend Ex date and Dividend record date

21 Nov 2023

If you hold shares in a company, then you must be familiar with terms like ex-dividend, dividend record date, book closure start data, book closure end date etc. There is a very subtle difference between all these terms and as a stock market investor it is essential for you to understand these terms in the right perspective. What is the difference between dividend ex date and record date? We also need to understand what does ex dividend date and record date mean? Is it possible to sell between ex-dividend date and record date? Let us first look at a live corporate action sheet to understand these terms..


Source: NSE

Most investors who avidly invest in stocks do so in blue chip companies that pay substantial dividends from time to time. If investors hold a large number of shares in a reputed company that promises profits from year to tear, investors can benefit, not merely by the increasing value of their shares, but also by large dividend payouts. Any dividend declared by companies acts as a bonus for shareholders, and this is a distinct draw to invest in shares of any given blue chip company.

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What is the dividend in the share market , and what is the dividend announcement date

Dividend is a payout to shareholders out of profits made by a company. Most companies become public (from being previously-held private firms) when they have reached a certain degree of growth. The company wishes to be listed on the stock exchange so that investors and the general public can have access to its shares. Once anyone from the general public buys the stock or shares of the company through an initial public offering or an IPO, they become shareholders of the company’s stock. After the company allocates shares to the general public, it is listed on the stock exchange and anyone can buy its shares. Companies share their profits with shareholders in the form of issuing dividends from time to time. 


Dividends are a post-tax appropriation and is paid out to shareholders and expressed either in rupee terms or in percentage terms. For example if the face value of the stock is Rs.10 and the company announces 30% dividend then it means that a dividend of Rs.3 per share will be paid out to shareholders. So if you are holding 1000 shares of the company then you will receive Rs.3,000 as dividends.

Dividends are announced by the company at specific periods of time. Who determines this and how? The dividend announcement date or declaration date is that date on which a company’s board of directors announces a dividend payout. The announcement or the declaration includes the size of the dividend, the ex-dividend date, and also the date of payment. 

But the question is who will receive the dividends? When a share is traded in the stock markets then there are buy and sell orders in a stock through the day. How does the company determine which shareholders should be paid the dividends declared. That is the where the record date comes into play.


What is the importance of record date?

The dividend declared by companies is paid to all shareholders whose names appear in the shareholder records of the company at the end of the record date. Normally, the shareholder records of a company to decide dividend entitlement is maintained by a registrar belonging to any given company and transfer agents like Karvy, In-time Spectrum etc. All the shareholders whose names appear in the records of the RTA as at the end of the Record Date will be entitled to receive the dividends. So if a company declares the record date 20th April, then all the shareholders whose names appear in the company records as at the end of 20th April will be entitled to receive the dividends. But there is a problem here! When I buy shares I get the delivery of shares only after T+2 days that is on the second trading day after the transaction date. That is where the concept of ex-dividend date comes in..


What is the ex-dividend date?

The ex-dividend date actually addresses the above issue of T+2 delivery date. The ex-dividend date is fixed as 2 trading dates that are prior to the record date. In the above case, since the record date is 20th April, the ex-dividend date will be 18th April. If there are trading holidays in between then the ex-dividend date will pushed back accordingly. What does the ex-dividend date indicate? You have to buy the shares of the company before the ex-dividend date so that you get the delivery of any given dividend issued by the company by the record date and therefore are entitled to dividends. The stock normally starts trading ex-dividend on the XD date.

Book closure dates

It is important to know what book closure means to grasp what a book closure date entails. Book closure is indicative of a particular period during which any company does not make any adjustments in the register of shareholders of the company. At this time, no changes whatsoever are made. Normally, during the book closure period any transfer of share requests are not entertained by the registrar. For example; if you buy shares during the book closure or if you buy shares just prior to the book closure, then you will get the actual delivery of shares only after the book closure periods ends.

The book closure date is typically used by companies to identify the cut-off date to determine the legitimate investors on record, and those investors who will receive dividends for a specific period. 

Actual payment of dividend on shares

Shareholders who receive dividends may not know what the background of actual dividend payments is all about. There are many steps in the issuance of a dividend. The final step is the actual payment of the dividends. If your bank mandate is registered with the registrar then the dividend amount will be automatically credited to your bank account. If you are holding physical shares or if your bank mandate is not registered then your dividend cheque will be mailed to you at your registered address. These days, most shareholders’ bank accounts are registered with the registrar of any company. This facilitates transparent online payment and prevents the date of dividend payout from being missed due to late delivery by the postal service. The date of payment of dividend will depend on whether the payout is an interim dividend or it is a final dividend. In case of interim dividend, the payout to the shareholders has to happen within 30 days from the date of the announcement of the dividend. However, in case of final dividend, the actual payment of dividend only has to be made within 30 days of the Annual General Meeting (AGM).

Understanding these nuances of dividend declaration is the key to making the best of your dividend experience. 

 In order for you to be eligible to get dividend payouts from any company, you should hold stocks of that company in your Demat account.  If you are a shareholder and your bank details are not registered with the company to receive dividend payouts in your bank electronically, you should register yourself at the earliest. For all intents and purposes, this is a safe and practical way to ensure you receive payments on time and prevents the hassle of physically depositing your well-earned bonus payouts from a company. 

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Related Articles: Should you prefer growth option or dividend option in Mutual Funds? | Dividend Vs Growth Vs Reinvestment Plans of MF | 


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