Dividend Schedule Chronology help exactly, purpose, record, jazz

sabre

S2000Magician, this one’s for you!
Can we get a break down of the chronology of the time line chronology of the dividends, from declaration to ex-dividend, to holders of record (and all that jazz) and what exactly is the purpose of each step?
Thanks in advance!

therecruit

Oh man, Elan mock is wrong then - they say new stock price is Old Stock price/(1+dividend payout ratio). Glad i got this clarified cos i didnt see this kinda then in CFAI in the reading where they discuss share repurchases etc. Don’t want to miss out on simple easy plug and chug ones- am sure the wordy longer ones will be educated guesses or plain crapshoot anyways.

Iginla2010

Clarification required: Stock price doesn’t fall precisely by dividend amount on ex-divident date
Stock price falls to Old Stock price/(1+dividend payout ratio)
Is this correct?

tikfed

Hi guys,
Two quick things - hopefully, not to put too sharp a point on this whole thing:
1) Just to clear up any potential confusion (and inadvertently cause more confusion) - It might seem that Ex-div date and Record date try to measure the same thing, but there is a difference.  Regarding cash dividends - Ex Div Date measures who is entitled to the cash payment, while Record Date measures who will actually receive the cash.  In the event of some kind of trade fail or other wonkiness, a trade might take longer to settle than the standard two-day cycle.  In such cases, the “buyer” might not have posession of the stock by the record date, even if they entered the transaction prior to ex-date.  In this type of scenario, the fact that the buyer bought prior to ex-date entitles him to the dividend, while the prior owner (i.e. “Seller”… or more appropriately, the Seller’s broker/custodian/whatever) will actually get the cash.  As the ‘seller’ is not actually entitled to the dividend, he will subsequently have to send it over to the buyer separately.
2) Shorting a stock actually puts you on the hook for the dividend (and other corp action events, too).  Essentially, you’re borrowing the stock from someone and selling it to someone else.   If it goes ex-div while you’re short, the awesomeness of the price drop is 100% cancelled out by you having to forward the cash dividend amount to the guy you borrowed the shares from.  And for the record, whoever is on the other side of your short sale will end up getting the dividend directly from the paying agent, as he will be the official holder of record.

Unforseen

Okay, perfect. Next question which is more interesting to me.  If we know for a fact that the stock price will drop by the PV of the dividend amount, why can’t we just short the stock right before market close the day before Ex-Dividend and buy back market open on Ex-Dividend?
My guess is this:  the stock price will always drop by the amount of the dividend, but we won’t know the net change in stock price when combined with other things that might cause the stock price to go up.  I still wonder if anyone has ever tried to short all stocks right before Ex-Dividend and bought them back on Ex-Dividend if you could end up with a net gain… everyone knows it’s going to drop on that day though, so I doubt it.

BC_MBA_student

So the holder of record date is the day (once the smoke is clear) they figure out exactly who made the cut-off as determined by the Ex-Dividend date? But nobody actually receives anything until Pmt date, right?  If so, what did you mean when you said “owners of record on this date receive the dividend”? Did you just mean the people they establish as owners of record on that day will receive the dividend on Pmt date?

IAmNeil

Okay so the Ex-Dividend date is used as both the cut-off to determine who gets the dividend and also the day the dividend takes affect in the stock price.  I’m still not exactly sure about the holder-of-record, what’s it’s purpose? The owners of record receive the dividend? What does that mean? How is that different than the dividends actually being paid out (Payment date), sorry.  I just cannot make the distinction between Holder-of-Record and Payment date.

onelife1

Declaration date - when the company announces that it will pay dividends
Ex - Dividend date (always two days before the holder of record date) . If you sell a share between this period and the holder of record date you are still entitled to the dividend. If you buy a share in this period you do not get the dividend. If you buy one day before the ex-dividend date, you get a dividend.
Hold of Record date - Designated day by the company.
Payament date - self explanatory
Edit: See the magician has answered already

segalm

Declaration date: the day that dividends declared are removed from retained earnings and put into dividends payable.
Ex-dividend date: the day that the dividend is removed from the stock value; if you sell before this date, you don’t get the dividend; if you sell on or after this date, you do.  The stock price will drop by the amount of the dividend on this date.  (It should drop by the PV of the dividend, but such nuances are omitted.)
Holder-of-record date: generally two days after the ex-dividend date; owners of record on this date receive the dividend.  (Originally it was deemed to take two days to record the sale; hence, the two-day delay from the ex-dividend date to the holder-of-record date.)
Payment date: the day that dividends are paid, cash and dividends payable are removed from the balance sheet.