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Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

A public corporation's board of directors declares a quarterly cash dividend on its common stock. Arrange the key dividend milestone dates in their proper chronological sequence from earliest to latest.

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

Answer

The correct chronological sequence of corporate cash dividend milestone dates is Declaration Date, Ex-Dividend Date, Record Date, and Payable Date (DERP).
The chronological sequence for cash dividend distributions follows the DERP memory device: Declaration Date (board authorization), Ex-Dividend Date (first trading date without dividend, 1 business day before record date under T+1), Record Date (identifying eligible holders), and Payable Date (payment distribution).

Step-by-Step Solution

1
Identify the initial board action.
The Declaration Date occurs first.
The corporate board of directors must formally approve and announce the dividend before any legal liability or timeline exists.
2
Determine the trade eligibility cutoff date based on settlement.
The Ex-Dividend Date occurs second.
Under FINRA regular-way T+1 settlement rules, the ex-dividend date is set one business day prior to the record date. Investors buying on or after this date will not settle in time to be owners of record.
3
Identify the official stockholder accounting date.
The Record Date occurs third.
The corporation closes its stock transfer books on this date to compile the list of shareholders eligible for payment.
4
Identify the final distribution date.
The Payable Date occurs fourth.
Dividend disbursements are issued to registered holders after the record date list is finalized.

Key Concept

Corporate Dividend Milestone Sequence (DERP)
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions