Ex Div Date and Record Date

lindabea

I'm trying to acquire more knowledge on this subject. According to information I been reading, the Ex Div date for stocks is usually set one business day before the Record Date.

So can someone please explain to me why on the Vanguard site they show for (EG LS INC) the dates as the other way round ie EX div date 01/04/19 and Record date 29/03/19. The pattern is the same for previous years.

I'm sure there's a valid explanation here which my knowledge is lacking.

lindabea

Hmmm... Now , I'm completely baffled. So, if the Vanguard site is correct, then the information from Wikipedia is incorrect. See link below:

https://en.wikipedia.org/wiki/Ex-dividend_date

This is the relevant extract from the site:

To determine the ultimate eligibility of a dividend or distribution, the record date, not the ex-date, is relevant. Each shareholder entered in the shareholders' register at the record date is entitled to a dividend.[3] Usually, the person owning the stock on close of business one business day before ex-date is also the person registered in the shareholders register on record date, because companies set the ex-date and record date of the dividend in line with the settlement cycle of the security. Most developed financial markets such as the USA, UK, Germany, France, etc. use a settlement cycle of T+2 for stocks.[4] As a result, companies in these markets set the ex-date one day before the record date of the dividend (example: ex-date Wednesday, record date Thursday: a security purchased on Tuesday will settle on Thursday; a person who bought the security on Tuesday bought one day before the ex-date and will be registered as shareholder on Thursday and hence be entitled to the dividend)

Any more explanations please for this apparent discrepancy

Linton

I think funds and shares are different. The wikipedia description refers to shares. If you look at the record dates and ex-div dates for various ITs you will see the record date is the day after the ex div date.

bowlhead99

lindabea wrote: »

Hmmm... Now , I'm completely baffled. So, if the Vanguard site is correct, then the information from Wikipedia is incorrect. See link below:

Any more explanations please for this apparent discrepancy

As suspected by Linton, open ended funds can be different from shares, investment trusts and other instruments traded on a stock exchange.

When you buy a share on a stock market there is a standard settlement window - e.g. trade date plus two business days.

You and I can agree on Monday that I will buy 100 shares from you and give you £1000 for them. The 'settlement' in which my broker actually gives you or your broker the £1000 and you or your broker delivers the shares, will be on Wednesday. The clearing system informs the registrar of the company that the seller should be taken off their central register of shareholders (or have their quantity of holdings reduced) with the new owner added to the register (or their quantity increased).

Depending on my broker, he may require me to have the £1000 in cleared funds in my account before he lets me even place the order; or he might just need me to provide the cash on or before settlement is due (perhaps by electronic cash transfer or through settlement of some other trade where I was the seller).

When making arrangements to pay dividends to shareholders of stock market listed companies, the directors will set a record date - e.g. "if you are on the record as owning those shares as of end of day Thursday, you will qualify for the next dividend payment".

As there is a standard settlement window for me to come up with the money, and for you to deliver the shares, it follows that the date at which our trade will need to be agreed in order for me to actually settle my obligation to get the shares and appear on the share register and qualify for the dividend, and for you to get off the share register and not get the dividend, will need to be ahead of the Record Date.

So if we do our trade on Monday we will have settled it and I'll be on the share register by end of day Wed, and I'll get the dividend when they look at the final record of who is on the register on Thursday night

Likewise if we do our trade on Tuesday I will just squeeze into the register by end of day Thursday, so would get the dividend.

However if we do our trade on Wednesday morning, we won't be settling until Friday, so I won't be the shareholder of record for those shares on Thursday night, because you haven't delivered them and I haven't paid. So when they look at the records overnight Thursday to see who is the shareholder qualifying for the dividend - they won't be paying me; only paying you.

So therefore the right to the dividend can't be included in what we agree to buy and sell when we are striking bargains in the market on Wednesday. On Wednesday, the price per share will be stated "ex-dividend", because the share's trading without the right to receive that payment. If you sell to me on Wednesday you'll still get the dividend, so I won't pay you as much for the share as I would if I would qualify for getting the payment.

All the above ties up with your comment that you expect ex dividend date for traded shares to be a day before the official Record Date.

However, open ended funds work a little differently. You are not transferring ownership of a share from one owner to another. The fund manager is literally issuing new shares for cash - or redeeming old shares for cash and destroying them.

It looks like Vanguard are saying that if you agree an order on 31 March to subscribe or redeem shares, you will qualify to get the dividend as part of the subscription - or formally give up your right to get the dividend as part of the redemption. So the 31 March pricing will be done including the dividend value and they will look at who is an existing investor without an accepted redemption request (or new investor with an accepted offer to subscribe for new shares) at close of business 31st, to determine who they pay.

Whereas if you leave it until 1 April to have your subscription order accepted by the manager, you have missed the window to acquire fund shares or units including the dividend; you won't qualify for the dividend to be paid to you; the price is ex- dividend. Or on the sell side you have missed the opportunity to get out of the fund at a price that includes the dividend, and you'll instead get a lower price for cashing-in those shares, but also receive the separate payment on the dividend payment date.

george4064

lindabea wrote: »

Hmmm... Now , I'm completely baffled. So, if the Vanguard site is correct, then the information from Wikipedia is incorrect. See link below:

https://en.wikipedia.org/wiki/Ex-dividend_date

This is the relevant extract from the site:

To determine the ultimate eligibility of a dividend or distribution, the record date, not the ex-date, is relevant. Each shareholder entered in the shareholders' register at the record date is entitled to a dividend.[3] Usually, the person owning the stock on close of business one business day before ex-date is also the person registered in the shareholders register on record date, because companies set the ex-date and record date of the dividend in line with the settlement cycle of the security. Most developed financial markets such as the USA, UK, Germany, France, etc. use a settlement cycle of T+2 for stocks.[4] As a result, companies in these markets set the ex-date one day before the record date of the dividend (example: ex-date Wednesday, record date Thursday: a security purchased on Tuesday will settle on Thursday; a person who bought the security on Tuesday bought one day before the ex-date and will be registered as shareholder on Thursday and hence be entitled to the dividend)

Any more explanations please for this apparent discrepancy

Sorry, I also got confused with your post so have deleted my post!

Normally the ex-div date is the (business) day before the record date. The ex-div date is the first day when the shares are trading without the entitlement to the dividend.

I say 'normally' because most listed securities trade on 'T+2' settlement. So if you buy a share today, the actual trade will settle and hence update on the registrars system 2 working days from now (so Friday).

So if a stock has a record date of Friday (usually at close of market) then the last time to purchase a share with the entitlement of the dividend would be Wednesday because it settles on the Friday (T+2). Hence from Thursday onwards anyone buying shares will not be entitled to the dividend and hence the share is trading 'ex-dividend'.

Vice versa with selling, if you hold a share and want to receive the dividend, the earliest you can sell it (whilst still qualifying for the dividend) would be Thursday since when all shareholders are recorded on Friday close of market you will still be marked as a shareholder (either directly as a shareholder or indirectly via your investment platform).

lindabea

Thank you for all these useful explanations. It's much appreciated. Can I just offer my interpretations to make sure I fully understand what you guys are saying.

To sum up, it would appear that from a buying of shares point of view, the Ex Div date has no significance. If I buy a stock before ex div, I get the dividend but at a higher price; if I buy after ex div, I pay a lower price due to the dividend reduction, but not receive the dividend. Probably, no loss or gain in monetary terms.

Conversely, if I were selling before ex div, I get the dividend, but selling after ex div I lose the dividend. ie best to sell before ex div to get a win situation.

Does all this sound correct to you guys?

george4064

lindabea wrote: »

Thank you for all these useful explanations. It's much appreciated. Can I just offer my interpretations to make sure I fully understand what you guys are saying.

To sum up, it would appear that from a buying of shares point of view, the Ex Div date has no significance. If I buy a stock before ex div, I get the dividend but at a higher price; if I buy after ex div, I pay a lower price due to the dividend reduction, but not receive the dividend. Probably, no loss or gain in monetary terms.

Conversely, if I were selling before ex div, I get the dividend, but selling after ex div I lose the dividend. ie best to sell before ex div to get a win situation.

Does all this sound correct to you guys?

I think you are slightly mixed up with regards to selling a share.

Let's say a share goes ex-div on 15th Jan and record date is 16th Jan.

1. If you sold the share on 14th Jan you will not be on the share register on 16th Jan and hence will not receive dividend.

2. If you sold the share after 14th Jan (so on 15th Jan or later) you will be entitled to the dividend.

eskbanker

lindabea wrote: »

Conversely, if I were selling before ex div, I get the dividend, but selling after ex div I lose the dividend. ie best to sell before ex div to get a win situation.

Does all this sound correct to you guys?

Not that bit - if you sell before ex div you don't get the dividend, but if you sell afterwards, you'll receive the dividend but a correspondingly lower sale price.

Bottom line is that, all things being equal, there's no particular reason to try to time purchases or sales before or after divi dates, as the effect of the dividend is reflected in the price, keeping it all neutral overall.

ColdIron

lindabea wrote: »

If I buy a stock before ex div, I get the dividend but at a higher price; if I buy after ex div, I pay a lower price due to the dividend reduction, but not receive the dividend. Probably, no loss or gain in monetary terms.

Conversely, if I were selling before ex div, I get the dividend, but selling after ex div I lose the dividend. ie best to sell before ex div to get a win situation.

Does all this sound correct to you guys?

As a buyer you are close
If you buy before the ex dividend date you have the right to the dividend. If you buy on or after you don't

But as a seller you have it the wrong way around. If the buyer does not receive the dividend then that means that the seller does so:
If you sell before the ex dividend date you do not have the right to the dividend, if you sell on or after you do

lindabea

eskbanker wrote: »

Bottom line is that, all things being equal, there's no particular reason to try to time purchases or sales before or after divi dates, as the effect of the dividend is reflected in the price, keeping it all neutral overall.

Thank you for your reply. This is the bit I was trying to grasp in my head. Ex div dates make no difference in making a winning strategy.

lindabea

george4064 wrote: »

I think you are slightly mixed up with regards to selling a share.

Let's say a share goes ex-div on 15th Jan and record date is 16th Jan.

1. If you sold the share on 14th Jan you will not be on the share register on 16th Jan and hence will not receive dividend.

2. If you sold the share after 14th Jan (so on 15th Jan or later) you will be entitled to the dividend.

Thank you for correcting me on my comment. With all the confusion, I got my logic the wrong way round