Does the Settlement Date Have to Occur Before the Ex-Dividend Date to Receive a Dividend?

by Tim Plaehn, studioD

Stock investors who want to make sure they collect a pending dividend payment must be aware of the several different dates involved concerning the dividend. The dates include the record date, ex-dividend date, settlement date and payment date. The settlement date and ex-dividend date are directly related to whether an investor earns the dividend.

Stock Market Settlement

When an investor buys shares of stock, the purchase takes three business days to "settle" or become official. Industry jargon uses the term T+3 to indicate stock settlements is three days after the trade date. The days of settlement time are intended to allow a buyer to get the purchase money to her broker or for a seller to deliver the stock certificates. In these days of electronic buying and selling, the three days are rarely used for these purposes, but the convention still exists that the stock you buy is not officially yours until three the third day after the day you buy it.

Dividend Record Date

To determine which investors are entitled to receive a pending dividend payment, a record date is included in a dividend announcement along with the amount of the dividend and the payment date. To be a shareholder of "record" an investor must own the shares on the record date. As noted above, an investor becomes the official owner on the settlement date, so the be a shareholder of record, the settlement date must be on or before the record date.

Ex-Dividend Date

With T+3 settlement and the requirement to own shares on the dividend record date, a stock must be purchased at least three business days before the record date. A purchase exactly three days early will put the settlement date on the record date and the investor will receive the dividend. This means an investor who buys two days before the record date will not receive the dividend. This is the day the stock goes ex-dividend. A stock purchase can settle after the ex-dividend date and the investor will still receive the dividend, as long as the trade or purchase date was before the ex-dividend date.

Payment Date

The dividend payment date will typically be a few days to a few weeks after the record date. The investor does not need to keep the shares until the payment date to receive the dividend. As long as the shares were settled by the record date, the dividend was earned by the investor. The shares can be sold on the ex-dividend date or any time after and the dividend will still be deposited in the investor's account.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.