Investing

Distribution date vs stock sell/settlement dates?

  • Last Updated:
  • Dec 31st, 2016 1:33 am
[OP]
Deal Addict
Oct 7, 2011
1025 posts
310 upvotes
Toronto

Distribution date vs stock sell/settlement dates?

Some stocks give distribution or dividends, based on holdings on a certain date. Say Dec. 31, 2016.

If someone sold stocks before this date, but it doesn't settle till after that date (say Jan. 2, 2017), does that mean the holder will still get the distribution/dividend because as of Dec. 31/16, they still hold the stock?

In this case, would the distribution/dividend count toward 2016, while the capital gain/loss on Jan. 2/17 would count in 2017?
4 replies
Sr. Member
User avatar
Feb 1, 2012
959 posts
1007 upvotes
Thunder Bay, ON
In the case of a stock sale that settles on Jan 2, 2017, the capital gain or loss will apply for the tax year 2017. If a dividend or distribution is paid on Dec 31, 2016 then it counts as 2016 income for tax purposes.

The date the distribution or dividend is paid is not relevant to whether the shareholder receives the distribution or dividend. You have to be the shareholder of record on the record date which takes place some time before the date the dividend is paid. Since stocks take 3 days to settle, you have to place a buy order 3 days before the record date in order to receive the dividend, and conversely if you place a sell order 3 days before the record date you will not receive the dividend.

AdjustedcostBase.ca has a good explanation:
http://www.adjustedcostbase.ca/blog/und ... ent-dates/

Here is an example:

http://www.investopedia.com/terms/r/recorddate.asp
Consider an example. Assume company Alpha has declared a dividend of $1 payable on May 1, 2015 to shareholders of record as of April 10, 2015. The record date is therefore April 10, 2015 and the ex-dividend date is two business days before the record date, or April 8, 2015.

If Sam wishes to receive the dividend of $1 per Alpha share, she should buy the stock before its ex-dividend date. If she buys Alpha shares on April 7, her trade will settle on April 10; since she is a shareholder of record as of April 10, she will receive the dividend. But if she waits for a day and buys Alpha shares on April 8, which is the ex-dividend date, her trade will only settle on April 13 (as April 11 and April 12 are Saturday and Sunday respectively, three business days after April 8 is April 13). She would not receive the dividend in this case as she was not a shareholder of Alpha as of the April 10 record date.
But it is not really relevant to shareholder return since stock prices typically drop by the amount of the dividend on the ex-date.
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[OP]
Deal Addict
Oct 7, 2011
1025 posts
310 upvotes
Toronto
Deepwater wrote:
Dec 30th, 2016 1:01 pm
But it is not really relevant to shareholder return since stock prices typically drop by the amount of the dividend on the ex-date.
Thanks. Lots of good info. About the stock price typically drop by the amount of dividend on the ex-date, that's interesting. So if wanting to buy a stock but missed the pre-date, it sounds like buying on the ex-date can still be good.
Deal Expert
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Sep 19, 2004
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Waterloo
Ex-div date is all one needs to care about
Buying BEFORE ex date = you get the dividend
Buying ON or AFTER ex date = NO dividend

For TSX, good site to see Div % and Ex-Div dates
http://tsx.exdividend.ca/


Also, for 2016, last day for tax year 2016 is (as it takes 3 days to settle)
TSX = Dec 23
USA = Dec 27
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[OP]
Deal Addict
Oct 7, 2011
1025 posts
310 upvotes
Toronto
jerryhung wrote:
Dec 30th, 2016 6:52 pm
Ex-div date is all one needs to care about
Buying BEFORE ex date = you get the dividend
Buying ON or AFTER ex date = NO dividend

For TSX, good site to see Div % and Ex-Div dates
http://tsx.exdividend.ca/
That's a good site. Is there one for distributions?

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