Savvy Trades and Investments

[jtomm]

Dividend Rules: It's not a silly question, and perfectly reasonable to infer it that way. I've always thought the ex-div date rules were needlessly confusing. I'll summarize, then explain.

Summary: The easiest way to remember it is there are two basic ex-div date possibilities: 1) If div amount is less than 25% of the stock price, then ex-div date is one business day prior to the record date 2) if div amount is more than 25% of the stock price, then ex-div date is the first business day AFTER the payable date.

(If stock is an ADR, then it might be a special separate date, but for most stocks, just those two rules apply)

To further explain for anyone not familiar, the company doesn't set the ex-div date, the exchange does -- following FINRA rules. The whole T+1 thing (used to be T+2, and before that I think was T+3) always seemed very convoluted to me. I think what they mean is you have to allow the day of the trade (that's the T), plus another full business day, for trades to settle. So essentially, you have to buy the stock two days prior to the record date to get the div, and it goes ex-d one day prior to the record date. When it used to be even longer settlement time it was even more confusing for the investor because what if there's a holiday in between, or it's over a weekend, etc? Needlessly confusing.

I wish they would just set up a system something like the company contacts the exchange prior to announcing a dividend, gives the exchange the particulars, the exchange confirms the ex-div date in writing, and then the company announces the ex-div date in the press release. Something like that would make a whole lot more sense. Instead, we have this Byzantine process where the company announces 3 dates regarding the dividend, and none of them are what really matter to the investor. The investor has to figure out the ex-d date himself. lol.

Company gives the announcement date, the record date, and the payable date, and they don't mention the one date that matters: the ex-d date. Crazy system. Can't blame the company because they don't set the ex-div date, but it's needlessly confusing to investors. To a person of reasonable intelligence, if it says the "record date" is the 24th, it's perfectly reasonable to think you can buy on the 24th and get the div. Why should the average person have to know about settlement days and indirectly calculate the ex-div date?

Nutso system, but hey, it is what it is.

With the 25% or larger dividends, I think there are back office settlement procedures that make it easier for the brokers to have the ex-d date come AFTER the payable date, and then it comes with a "due bill" I think, and all this other nonsense that shouldn't be any of our concern.

Just tell us the dang ex-dividend date so there's no confusion. Would be sooo much easier. But it's been this way for decades and I doubt it will change anytime soon.

Here's a link to the FINRA rules:

https://www.finra.org/rules-guidance/rulebooks/finra-rules/11140