Start Accounting advanced dividend liquidating

Accounting advanced dividend liquidating

Therefore, while it is If a company declares Thursday, the 7th, as the record date, an investor would normally have to buy the stock on Tuesday, the 5th, to qualify for the dividend because of the T 2 rule, which states that stock transactions must settle in two business days.

The payment of a dividend via due bills is quite unlike a normal dividend payment.

Shares that are purchased after the record date but before the deferred ex-date (the due bill period) are traded with a due bill attached.

Contrary to a common misperception, the record date does not always determine which investor (the buyer or the seller) gets the dividend.

It is true that with normal dividends the record date determines the ex-dividend date but that is not true for dividends of 25% or more of a company's stock price.

In such a case, the ex-date is sooner than it otherwise would have been.

For example, if Friday is the record date, normally Thursday would be the ex-date.

For example, a stock that pays a dividend of fifty cents per quarter and trades at $10.00 on the last trade of the day before the ex-dividend date will then have that closing price adjusted down at the open the next trading day (the ex-dividend date) to $9.50.

Theoretically, and indeed commonly in practice, the stock will not open at exactly $9.50, because market forces may drive the price higher or lower, but in any case, the dividend-adjusted price of $9.50 will remain as the basis upon which the daily change is calculated.

The chain of events that begins on the payment date works like this: The dividend is first paid to the shareholder of record, then, on the due bill settlement date, which the dividend is withdrawn from the account of the shareholder of record who sold the shares during the due bill period and is then paid to the shareholder who bought the shares during the due bill period.

The dividend is paid to all shareholders of record first because that is the only information the company has on who is eligible for the dividend.

It is not common that a record date falls on an exchange holiday or a weekend but it happens on occasion.