Quick Answer
Dividends follow four dates: declaration, ex-dividend, record, and payable. The ex-dividend date decides eligibility. Buying before it earns the dividend; buying on or after it forfeits the dividend. Under current settlement rules, the ex-dividend date and the record date fall on the same business day, so the payable date follows later.
With an understanding of dividend types, you need to know the four dates that control who gets paid and when. The ex-dividend date is one of the most frequently tested concepts on the SIE exam.
The Four Key Dates
Every dividend follows a four-date sequence:
| Date | What Happens | Set By |
|---|---|---|
| Declaration date | Board of directors announces the dividend amount, record date, and payment date | Company |
| Ex-dividend date | First day the stock trades without the dividend attached | Listing exchange (listed stocks) / FINRA (OTC stocks) |
| Record date | Shareholders on the company's books as of this date receive the dividend | Company |
| Payable date | The dividend is actually paid to eligible shareholders | Company |
Memory Aid: Think D-E-R-P: Declaration, Ex-date, Record, Payable.
Exam Tip: Gotchas
- The ex-date is set by the listing exchange (for exchange-listed stocks) or by FINRA (for OTC stocks), NOT the company. The company sets the declaration, record, and payable dates. For an exchange-listed stock, the listing exchange sets the ex-date; for an OTC stock, FINRA sets it.
The Ex-Dividend Date
The ex-dividend date is the most important date for the exam. Under the current T+1 settlement cycle:
- The ex-dividend date is the same business day as the record date
The golden rule:
- Buy before the ex-date → you ARE entitled to the dividend
- Buy on or after the ex-date → you are NOT entitled to the dividend
Think of it this way: When you buy a stock, the trade does not settle instantly. Under T+1 settlement, the trade settles one business day after the trade date. If you buy on the ex-date (which is also the record date), your trade settles the next business day, so you are not on the company's books by the record date and miss the dividend. To be on the books by the record date, you must buy at least one business day before.
Mutual Funds Are Different
The rules above are for common stock. A mutual fund breaks from them on two points:
- Who sets the ex-date: Mutual fund shares are not exchange-traded, so there is no exchange or FINRA settlement cycle to set the ex-date against. The fund's own board sets it instead.
- Where the ex-date falls: For a mutual fund, the ex-dividend date is usually one business day AFTER the record date, not the same day as it is for a stock. The fund's net asset value (NAV) drops by the distribution amount on that day.
- The dividend sequence for a mutual fund is therefore D-R-E-P (Declaration, Record, Ex-dividend, Payable): Record and Ex-dividend swap places compared to the stock sequence.
Exam Tip: Gotchas
- The stock ex-date rule does not carry over to mutual funds. A stock's ex-date falls on the record date (T+1 settlement). A mutual fund's ex-date falls one business day AFTER the record date, and the fund's own board sets it, not an exchange or FINRA.
Price Behavior on the Ex-Date
On the ex-dividend date, the stock price typically drops by approximately the dividend amount.
- This makes sense: the stock no longer carries the right to the upcoming dividend
- A stock trading at $50 with a $1 dividend would typically open around $49 on the ex-date
- The drop is automatic for exchange-listed securities; the exchange adjusts the opening price
Exam Tip: Gotchas
- The ex-date price drop is not a loss. The stock price drops by approximately the dividend amount because the stock no longer carries the right to the upcoming payment. This is a market adjustment, not a decline in the company's value.
Putting It All Together
Example timeline:
| Date | Event |
|---|---|
| January 15 | Declaration date - Board announces $0.50/share dividend |
| February 13 | Ex-dividend date AND record date - Same day under T+1; stock trades without the dividend starting today |
| March 1 | Payable date - Dividend checks are mailed/deposited |
- If you buy on February 12 (one business day before the ex-date), you get the dividend. Your trade settles February 13, putting you on the books on the record date.
- If you buy on February 13 (the ex-date), you do NOT get the dividend. Your trade settles February 14, after the record date.
Exam Tip: Gotchas
- Buy on the ex-date = no dividend. If you buy on the ex-date, settlement occurs after the record date, so you miss the dividend. Buy BEFORE the ex-date to get the dividend.
What Should You Check on Exam Day?
- Can you name the four dividend dates in order for a stock (D-E-R-P), and explain how a mutual fund's order differs (D-R-E-P)?
- Do you know who sets the ex-dividend date for exchange-listed stocks versus OTC stocks?
- Can you explain why buying on the ex-dividend date under T+1 settlement means you miss the dividend?
- Do you know how the stock price typically behaves on the ex-dividend date and why?
- Can you determine, given a record date, the last day to buy and still receive the dividend?