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Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

A corporate issuer's board of directors approves a regular quarterly cash dividend payout to its common stockholders. Place the four milestone dates involved in this cash dividend distribution process in chronological order from first to last.

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

Answer

The correct chronological sequence for a cash dividend corporate action is Declaration Date, followed by Ex-Dividend Date, Record Date, and finally Payable Date (DERP).
The standard chronological order of dividend milestone dates follows the acronym DERP: Declaration Date (when announced), Ex-Dividend Date (first day stock trades without dividend eligibility, set one business day prior to record date under T+1), Record Date (when ownership records are checked by the issuer), and Payable Date (when dividend funds are sent out).

Step-by-Step Solution

1
Identify the initial announcement date.
Declaration Date occurs first.
The corporate action process begins when the board of directors meets to declare and authorize the dividend distribution.
2
Determine the trade cutoff date for dividend entitlement based on settlement cycles.
Ex-Dividend Date occurs second.
Because regular-way settlement for common stock is T+1 (one business day), the SRO sets the ex-dividend date one business day prior to the record date so that trades settling after this date do not receive the dividend.
3
Identify the issuer's internal ownership confirmation date.
Record Date occurs third.
The issuer checks its stock transfer records on this date to verify who owns the shares and is officially entitled to the payout.
4
Identify the distribution settlement date.
Payable Date occurs last.
This is the date payment checks or electronic funds are disbursed to shareholders of record.

Key Concept

Chronological Sequence of Dividend Milestone Dates (DERP) and T+1 Ex-Date Determination
Estimated Time:1m 0s
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions