Securities Industry Essentials (SIE) ExamKnowledge of Capital MarketsMedium
A publicly traded company has announced its intention to pay a cash dividend. For an investor to be eligible to receive this dividend, they must purchase the stock before which of the following dates?
- ADeclaration Date
- BPayment Date
- CEx-Dividend Date
- DRecord Date
Show answer & explanationAnswer & explanation
Correct answer: C. Ex-Dividend Date
To receive a dividend, an investor must purchase the stock before the ex-dividend date. On or after the ex-dividend date, the stock trades without the dividend attached.
Why the other options are wrong
- A. The declaration date is when the board announces the dividend, but isn't the cutoff for buyers.
- B. The payment date is when the dividend is actually paid out, after eligibility is determined.
- D. The record date is the date on which shareholders must be recorded as owners to receive the dividend; purchases must settle before this.
Ex-Dividend Date
The ex-dividend date is the first date on which a stock trades without the right to the next dividend payment.
- Typically one business day before the record date.
- If you buy on or after this date, you do not receive the dividend.
- The stock price usually drops by the dividend amount on this date.
Memory trick: Ex-Dividend: 'Exclude' yourself if you buy on this day.