BlueJay2020 wrote: It's behind a paywall so here it is. It confirms what I said in explanation for the temporary SP drop on the ex-div date.
I’m hoping you can clear up some confusion around dividend record dates and ex-dividend dates and explain when an investor needs to buy a stock to get the dividend. Case in point: I bought Leon’s Furniture Ltd. (LNF) on Sept. 3, hoping to receive the special dividend of $1.25 per common share payable on Oct. 8, but I’m concerned that I might have been too late.
Based on the e-mails I receive, dividend record dates and ex-dividend dates confuse a lot of investors. Today, I’ll explain what these dates mean. Then, I’ll demonstrate why, contrary to what many investors think, buying a stock in time to receive the next dividend doesn’t actually do them any good.
Let’s use Leon’s Furniture as an example.
On Aug. 11, the retailer declared a regular dividend of 16 cents a share. Because furniture sales have been strong, Leon’s also declared a special dividend of $1.25 a share. Both dividends are payable on Oct. 8 to shareholders of record at the close of business on Sept. 8, so I’m going to treat this as one big dividend of $1.41 a share.
Now for a skill-testing question: If the record date for the dividend is Sept. 8, by what date would an investor need to purchase the shares in order to receive the payment?
Before we answer the question, we need to briefly review something called the settlement period. When you buy a stock, you don’t become a shareholder of record immediately. It takes two business days from the trade date for the purchase to settle – that is, for the cash and shares to actually change hands – which is known in industry shorthand as T+2. (The settlement period for equity trades used to be three business days but was shortened to two in 2017.)
Simple enough, right? But with weekends and holidays, things can get a bit tricky. In the case of Leon’s, to be a shareholder of record at the close of business on Sept. 8, an investor would have had to purchase the shares no later than Sept. 3. That’s because Sept. 4 and 5 fell on a weekend and Sept. 6 was Labour Day, leaving Sept. 7 and 8 as the two business days in the T+2 formula.
It should be evident by now that, if an investor waited until Sept. 7 to purchase Leon’s shares, the trade would have settled on Sept. 9, which is one day after the record date and too late to receive the $1.41 dividend.
In this case, Sept. 7 is the ex-dividend date, because anyone purchasing the stock on or after this date won’t receive the dividend. (If this is starting to get confusing, it may help to remember that, with a T+2 settlement period, the ex-dividend date is always one business day before the record date.)