Record date

Definition

The record date is a specific date established by a company to determine which shareholders are eligible to receive a dividend payment. This date is crucial because only those who are listed as shareholders on the company's records as of the record date will receive the declared dividends. Understanding this concept is essential for investors, as it affects their entitlement to dividends and their trading strategies leading up to this date.

5 Must Know Facts For Your Next Test

1. The record date determines which shareholders will receive dividends, making it a key date in the dividend payment process.
2. Investors must purchase shares before the ex-dividend date to be eligible for dividends on the record date.
3. If a shareholder sells their shares before the record date, they will not receive the dividend, even if they owned the shares at the time of declaration.
4. Companies set a record date to ensure accurate and fair distribution of dividends to their shareholders.
5. The record date does not affect the price of the stock directly; however, it can influence trading behavior as investors position themselves around it.

Review Questions

• How does the record date impact a shareholder's eligibility for receiving dividends?
  • The record date directly impacts a shareholder's eligibility by determining who is entitled to receive the announced dividends. Only those listed as shareholders on the company's records by this date will qualify for the dividend payment. Therefore, if an investor buys shares after this date or sells them before it, they will not receive any dividend despite being a shareholder at some point.
• What role does the ex-dividend date play in relation to the record date, and how should investors plan their trades accordingly?
  • The ex-dividend date occurs one business day before the record date and marks the first day when new buyers of shares are not entitled to receive the upcoming dividend. Investors should plan their trades by ensuring they purchase shares before this ex-dividend date if they wish to receive dividends. This means timing purchases appropriately to secure eligibility based on both dates.
• Evaluate how changes in dividend policies and announcements can affect investor behavior regarding share purchases around the record date.
  • Changes in dividend policies can significantly influence investor behavior surrounding the record date. If a company announces an increase in dividends, investors may rush to buy shares before the ex-dividend date to capitalize on higher returns. Conversely, if a company cuts or suspends its dividend, it might lead to a sell-off, as shareholders seek to exit before losing value associated with future dividends. Therefore, understanding these dynamics allows investors to make informed decisions based on anticipated market reactions around record dates.

Related terms

ex-dividend date: The ex-dividend date is the first day that a stock trades without the right to receive the most recently declared dividend, which typically occurs one business day before the record date.

dividend declaration date: The dividend declaration date is when a company's board of directors officially announces the dividend payment, including the amount and the record and payment dates.

shareholder: A shareholder is an individual or institution that owns shares in a company and is entitled to a portion of its profits, typically through dividends.