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 (effective May 28, 2024):
- 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.
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.