Cash dividends DERP dates

FINRA FINRA Series 7
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1.2.8 Cash dividends

I don’t understand about this whole DERP dates

record date is the day a stockholder must be “on the books. A stock trade must settle on or before the record date for the investor to receive the dividend

The ex-dividend date (sometimes referred to as the ex-date) is the first day the stock trades without the dividend.

record as of February 17, 2021.

I don’t get it. If the record date is 2/17. That means the trade date has to be a day before record date cuz of T+1 settlement. So the record date is the settlement date. The day that the stocks settles.

Then why is the ex dividend date is BEFORE and not after the record date. Is it because you cannot buy the stock too early then you cannot get the dividend?

On January 14, 2021, Target Corporation announced that its Board of Directors declared a quarterly cash dividend of $0.68 per share of common stock. The dividend will be payable on March 10, 2021 to shareholders of record as of February 17, 2021.

So isn’t the time like

Jan 14 declared
XXXXXXXXXXX
Feb 17 record date. Stock had to be settled
Mar 10 stockholders get paid

Somewhere between Jan 14 and Feb 17. You have to trade the stock. But when? I just don’t know what exactly the ex dividend date refer to. Is the trade date where that dividend is not allowed?

And if it’s cash settlement. That means the trade date can be on the same day as record date to receive dividend

I think that’s why I’m struggling to study series 7. I tend to overlap information in my head and get them mixed up. Like I can never memorize whether corporate bonds and government bond use 30/360 or actual/365. Then if I understand it, then I immediately forget it next week

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The ex dividend date is the first day that it’s too late to buy the stock and receive the dividend. It’s a cutoff; you can buy it anytime before then and hold on to the stock to receive the dividend.

The rules changed last year, and most sources online, including chatgpt, haven’t been updated yet.

There are two types of settlement:

  • Regular way, which settles in T+1
  • Cash, which settles same day

So basically, if you buy a stock regular way, you don’t actually own it until the next day. With cash, you own it right away.

That’s why for regular way, if you buy on the record date, you won’t receive the dividend. You won’t officially own the stock until the next day, but that’s too late. So, the ex date (the day its too late to get the dividend) for regular way is the record date.

For cash, you own it right away, so buying on the record date is ok. The cash settlement ex date is the day after the record date.

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