DEFINITION of 'Record Date'
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INVESTOPEDIA EXPLAINS 'Record Date'
The record date is important because of its relation to another key date, the ex-dividend date. On and after the ex-dividend date, a buyer of the stock will not receive the dividend as the seller is entitled to it.
The ex-dividend date is set exactly two business days before the dividend record date. This is because of the T+3 system of settlement presently used in North America, whereby stock trades settle three business days after the transaction is carried out. Thus, if an investor buys a stock two business days before its record date, his trade would only settle the day after the record date. He would therefore not be a shareholder of record for receiving the dividend.
Consider an example. Assume company Alpha has declared a dividend of $1 payable on May 1, 2015 to shareholders
of record as of April 10, 2015. The record date is therefore April 10, 2015 and the ex-dividend date is two business days before the record date, or April 8, 2015.
If Sam wishes to receive the dividend of $1 per Alpha share, she should buy the stock before its ex-dividend date. If she buys Alpha shares on April 7, her trade will settle on April 10; since she is a shareholder of record as of April 10, she will receive the dividend. But if she waits for a day and buys Alpha shares on April 8, which is the ex-dividend date, her trade will only settle on April 13 (as April 11 and April 12 are Saturday and Sunday respectively, three business days after April 8 is April 13). She would not receive the dividend in this case as she was not a shareholder of Alpha as of the April 10 record date.