Dividends: The Four Dates That Matter
Buy the day before the ex-date and you get the dividend. Buy on it and you don't, and the stock price already knows.
The walkthrough
A dividend isn't a surprise gift, it runs on a strict calendar with four dates, and getting one day wrong means you miss the payment entirely.
1. Declaration date. The board *announces* the dividend: the amount per share, the record date, and the pay date. This is a legal commitment; the company now owes the money to whoever qualifies.
2. Ex-dividend date (the one that matters). This is the cutoff. To receive the dividend you must own the shares *before* the ex-date, i.e. buy on or before the day before ex. Buy *on* the ex-date and the seller keeps the dividend, not you. Because settlement takes time (the US moved to T+1 in 2024), the ex-date is set so that anyone buying from the ex-date onward won't be the legal owner by the record date.
3. Record date. The company freezes its shareholder register and checks *who actually owns the shares*. Thanks to the settlement lag, the record date is typically the same as or one business day after the ex-date. You don't act on this date, your broker and the clearing system do.
4. Payment date. The cash actually lands in shareholders' accounts, often weeks after the record date.
Why the price drops on the ex-date. On the ex-date the stock typically opens lower by roughly the dividend amount. That's not the market "selling off", it's mechanical. A £100 share about to pay a £2 dividend is worth £100 to a buyer who gets the £2, but only £98 to a buyer who doesn't. The exchange even adjusts resting orders down. So there's no free lunch in "buying just before the ex-date to grab the dividend": you receive £2 of cash and your share is worth ~£2 less (and in a taxable account you may now owe tax on it).
The rail map
The dividend timeline
- 1Declaration
Board announces amount, record date and pay date, a legal commitment.
- 2Ex-datehighest cost / risk
Ownership cutoff: buy before this day to qualify. Price drops by ~the dividend.
- 3Record date
Company freezes the register and checks who legally owns the shares.
- 4Settlement (T+1)where value leaks
Trades settle, so only pre-ex buyers are owners of record.
- 5Payment date
Cash is paid to qualifying shareholders, often weeks later.
Glossary
Ex-dividend date
The cutoff day: buy on or after it and you do NOT receive the upcoming dividend.
Record date
The day the company checks its register to see who owns the shares and qualifies.
Declaration date
The day the board formally announces the dividend and its key dates.
T+1 settlement
Trades legally settle one business day after the trade, which sets where the ex-date falls.
Dividend yield
Annual dividends per share divided by the share price, the income return of the stock.
Check yourself
1.To receive an upcoming dividend, by when must you own the shares?
2.Why does a stock usually open lower on its ex-dividend date?
3.Is there an easy profit in buying the day before the ex-date just to collect the dividend?
4.Which date is the actual cash paid to shareholders?