Am I Eligible for Dividends If I Sell Before Settlement Date?

The all important settlement or closing date is when a transaction is finalised. Share trading is like buying or selling property, you buy the house but don't actually own it until after closing. The seller also does not get the money until the closing date. On the settlement date, a seller collects money and gives up stock ownership while the buyer pays for the securities and becomes the official shareholder.

For equities, the settlement or closing date is the trade date plus three business days, also called T + 3. This means that the seller needs to deliver shares to the buyer within three business days after trade date. For mutual funds and options, settlement date is trade date plus one business day, T + 1.

The three day settlement date for securities affects dividend payments. The record date is the day a dividend is credited to your account, and three days before this record date the stock goes ex-dividend. You will still receive dividends (even if you no longer own the stock) when you sell a stock three days before the record date.

Sell your shares on or after the ex-dividend date to collect dividends. You miss out on payment if you sell shares before this date. Buy your shares before the ex-dividend date to get dividends. If you buy shares on or after this date, you don't collect the most recently declared dividend.