Canadian Securities Course (CSC) Level 1 Practice Exam

How does the Ex-dividend date work?

1. Set 2 business days after the dividend record date

2. Set on the same day as the dividend record date

3. Set 1 business day before the dividend record date

4. Set on the dividend payout date

The correct answer is: Set 1 business day before the dividend record date

The Ex-dividend date is established to determine which shareholders are entitled to receive the next dividend payment. A stock typically goes ex-dividend one business day prior to the dividend record date. This timing is critical because, for a shareholder to be eligible for the upcoming dividend, they must own the shares before the ex-dividend date; after this date, the shares trade without the right to receive the upcoming dividend. Thus, setting the Ex-dividend date one business day before the record date allows time for the trade settlement process to occur. When a buyer purchases shares on or after the ex-dividend date, they will not receive the dividend because the transaction settles after the record date. Therefore, the concept emphasizes the importance of timing within the context of dividend eligibility.