Ex-Dividend Date
The ex-dividend date is the first day a stock trades without the value of its upcoming dividend: buy on or after it and the dividend goes to the seller.
Four dates surround a dividend, and the SIE® tests the two things that separate the ex-date from the other three: who sets it, and where it falls.
Who sets it
The board of directors sets the declaration date, the record date, and the payable date. The board does not set the ex-dividend date. The exchange sets it for a listed stock, and FINRA sets it for an OTC stock. If a question asks which date the board does not control, or which party sets the ex-date, that split is the entire answer.
Where it falls
Entitlement is a settlement question. To collect the dividend you must be a settled holder on the issuer’s books on the record date, and a regular-way equity trade settles one business day after the trade, T+1.
Under T+1, the ex-dividend date is generally the record date itself, per FINRA Rule 11140(b)(1). The last day to buy and still receive the dividend is the business day before the record date.
Worked example
A board declares a $0.75 dividend on Monday, June 1, payable July 1 to holders of record on Monday, June 15. The exchange sets the ex-date at Monday, June 15, the record date.
Buy on Friday, June 12. T+1 counts business days, so the trade settles Monday, June 15. You are on the books on the record date and you receive $0.75 per share.
Buy on Monday, June 15, the ex-date. The trade settles Tuesday, June 16, one day after the record date. The seller is still the holder of record and keeps the dividend, which is what “ex”, meaning without, is telling you.
On the morning of the ex-date the stock’s prior close is marked down by roughly the dividend. A stock that closed Friday at $40.00 is expected to open Monday near $39.25, because a buyer that morning is no longer paying for a $0.75 dividend.
The exam trap
Current-Fact Watch: the ex-date moved. The United States shortened regular-way settlement to T+1 on May 28, 2024. Under the old T+2 cycle the ex-date fell one business day before the record date, and a large amount of prep material, including question banks still in circulation, teaches that stale rule. If a practice question keys “record date minus one business day” as the ex-date, the material predates the change.
The live trap on the exam is therefore an off-by-one error, and it has two forms. Buying on the record date is too late: the trade settles the next day. Selling on or after the ex-date does not cost the seller the dividend: the seller keeps it, because the buyer’s purchase settles too late to reach the books.
The third form is the weekend. T+1 counts business days, not calendar days, so a Friday purchase settles Monday. Any question with a Monday record date is checking whether you counted correctly.
Related distinctions
The record date is the eligibility test; the ex-date is the trading consequence of it. Stock dividends and splits use a record date too, but for a distribution of 25% or more of the stock’s value the ex-date is the first business day after the payable date, under FINRA Rule 11140(b)(2).
Check yourself
A stock's record date is Thursday, October 8. Under T+1 settlement, what is the last day an investor can buy the stock regular way and still receive the dividend?
- Thursday, October 8
- Wednesday, October 7
- Tuesday, October 6
- Friday, October 9
Show answer and explanation
Answer: B. Wednesday, October 7.
The ex-date is October 8, the record date, so the last entitled purchase is the business day before it. Choice A is the trap: a purchase on the record date settles October 9, one day too late.
Which party sets the ex-dividend date for an exchange-listed stock?
- The board of directors
- The transfer agent
- The exchange where the stock is listed
- The SEC
Show answer and explanation
Answer: C. The exchange where the stock is listed.
The exchange sets it, and FINRA sets it for OTC securities. Choice A is the trap, because the board sets the other three dates and the question is testing whether you know the ex-date is the exception.
Practice it: dividends and returns practice questions
