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Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

A publicly traded corporation's board of directors approves a standard regular cash dividend for its common shareholders. Arrange the four dividend milestone events in the correct chronological sequence from earliest (first to occur) to latest (last to occur).

  1. 1Declaration Date: The board of directors officially approves and announces the dividend payout details.
  2. 2Ex-Dividend Date: The first day on which the stock trades without the dividend rights attached.
  3. 3Record Date: The date on which the issuer inspects its stock transfer books to identify registered shareholders eligible to receive the dividend.
  4. 4Payable Date: The date on which dividend funds are disbursed to eligible shareholders of record.

Answer

The correct chronological sequence for a standard cash dividend is Declaration Date, Ex-Dividend Date, Record Date, and Payable Date (commonly remembered by the acronym DERP).
The milestone sequence for standard cash dividends follows the DERP memory aid: Declaration Date first (board approval), Ex-Dividend Date second (set by SRO one business day before record date under T+1T+1 settlement), Record Date third (ownership compilation date), and Payable Date fourth (payment distribution).

Step-by-Step Solution

1
Identify the initial corporate authorization date.
Declaration Date occurs first.
Until the board of directors formally declares the dividend, no distribution obligation or timeline exists.
2
Determine the trading eligibility cutoff date under T+1T+1 settlement rules.
Ex-Dividend Date occurs second (one business day prior to the record date).
Because equity trades settle on the next business day (T+1T+1), a stock must trade ex-dividend one business day before the record date so that buyers on or after that date will not settle in time to be registered owners on the record date.
3
Determine the shareholder qualification cutoff on the issuer's books.
Record Date occurs third.
The corporation closes its books at the end of this day to lock in the list of registered owners receiving the dividend.
4
Identify the final distribution date.
Payable Date occurs fourth.
Dividend checks or electronic funds transfers are distributed to record-date owners on this date.

Key Concept

Dividend Milestone Sequence (DERP: Declaration, Ex-Dividend, Record, Payable)
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions