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Question

Difficulty: EasySettlement Dates, Trade Confirmations, and Corporate Actions

A publicly traded corporation declares a regular quarterly cash dividend on its common stock. Arrange the following dividend milestone dates in the correct chronological order from first to last.

  1. 1Declaration Date
  2. 2Ex-Dividend Date
  3. 3Record Date
  4. 4Payable Date

Answer

The correct chronological sequence of dividend milestone dates is Declaration Date, Ex-Dividend Date, Record Date, and Payable Date.
The sequence of dividend dates follows the standard chronological order often remembered by the acronym DERP: Declaration Date, Ex-Dividend Date, Record Date, and Payable Date. The board first declares the dividend; the ex-dividend date then specifies when stock trades without dividend rights; the record date identifies stockholders entitled to payment; and the payable date is when funds are distributed.

Step-by-Step Solution

1
Identify the initial corporate authorization event
Declaration Date comes first
The corporate board of directors must officially declare and announce the intention to pay a dividend before any trading or settlement milestones are set.
2
Determine the trading eligibility cutoff date relative to settlement
Ex-Dividend Date comes second
Under regular-way T+1 settlement, the ex-dividend date is set exactly one business day prior to the record date so that trades made on or after this date do not settle in time for the buyer to be listed on the record date.
3
Determine the official shareholder list date and payment distribution
Record Date is third, followed by Payable Date fourth
The record date determines who owns the shares on the corporate books, and the payable date is when dividend proceeds are disbursed to those recorded owners.

Key Concept

Dividend Milestone Sequence (DERP)
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions