Record Date

Definition

The record date is the specific date set by a company to determine which shareholders are entitled to receive dividends or distributions. This date is crucial as it establishes the cutoff point for shareholders who will benefit from cash or stock dividends, ensuring that only those on record are eligible for these payments.

5 Must Know Facts For Your Next Test

1. The record date is usually set by the company's board of directors and can vary depending on the company's dividend policy.
2. Investors must own shares before the ex-dividend date to be eligible for dividends on the record date.
3. If an investor buys shares on or after the ex-dividend date, they will not receive the upcoming dividend.
4. The record date does not determine when dividends will be paid; it simply identifies who is eligible to receive them.
5. Companies typically announce both the record date and the payment date at the same time as they declare a dividend.

Review Questions

• How does the record date influence an investor's decision-making regarding purchasing stocks?
  • The record date directly influences an investor's strategy because it dictates who will receive dividends. Investors looking to benefit from an upcoming dividend must ensure they purchase shares before the ex-dividend date, which is one business day before the record date. Understanding this timeline helps investors make informed decisions about when to buy stocks to maximize their returns.
• Discuss the relationship between the record date and ex-dividend date in terms of shareholder eligibility for dividends.
  • The record date and ex-dividend date are closely related in determining shareholder eligibility for dividends. The ex-dividend date is set one business day prior to the record date, allowing time for transactions to settle. If a stock is purchased on or after this ex-dividend date, the buyer will not appear on the company’s records by the record date, thus missing out on receiving any declared dividends.
• Evaluate how changes in a company's dividend policy could affect the timing and significance of its record dates for shareholders.
  • Changes in a company's dividend policy can have substantial impacts on its record dates. For instance, if a company decides to increase its dividend payouts or change its payment frequency, it may adjust its record dates accordingly. Such changes could enhance shareholder value, but might also affect investor perceptions and trading behavior. A proactive approach to communicating these adjustments is critical for maintaining investor trust and ensuring shareholders are aware of their eligibility status.

Related terms

Dividend Declaration Date: The date on which a company's board of directors announces the payment of a dividend, specifying the amount and the record date.

Ex-Dividend Date: The first day on which a stock trades without the right to receive the upcoming dividend, usually set one business day before the record date.

Shareholder: An individual or institution that owns shares in a company, giving them certain rights, including the right to vote and receive dividends.