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I’m hoping you can clear up some confusion around dividend record dates and ex-dividend dates and explain when an investor needs to buy a stock to get the dividend. Case in point: I bought Leon’s Furniture Ltd. (LNF) on Sept. 3, hoping to receive the special dividend of $1.25 per common share payable on Oct. 8, but I’m concerned that I might have been too late.

Based on the e-mails I receive, dividend record dates and ex-dividend dates confuse a lot of investors. Today, I’ll explain what these dates mean. Then, I’ll demonstrate why, contrary to what many investors think, buying a stock in time to receive the next dividend doesn’t actually do them any good.

Let’s use Leon’s Furniture as an example.

On Aug. 11, the retailer declared a regular dividend of 16 cents a share. Because furniture sales have been strong, Leon’s also declared a special dividend of $1.25 a share. Both dividends are payable on Oct. 8 to shareholders of record at the close of business on Sept. 8, so I’m going to treat this as one big dividend of $1.41 a share.

Now for a skill-testing question: If the record date for the dividend is Sept. 8, by what date would an investor need to purchase the shares in order to receive the payment?

Before we answer the question, we need to briefly review something called the settlement period. When you buy a stock, you don’t become a shareholder of record immediately. It takes two business days from the trade date for the purchase to settle – that is, for the cash and shares to actually change hands – which is known in industry shorthand as T+2. (The settlement period for equity trades used to be three business days but was shortened to two in 2017.)

Simple enough, right? But with weekends and holidays, things can get a bit tricky. In the case of Leon’s, to be a shareholder of record at the close of business on Sept. 8, an investor would have had to purchase the shares no later than Sept. 3. That’s because Sept. 4 and 5 fell on a weekend and Sept. 6 was Labour Day, leaving Sept. 7 and 8 as the two business days in the T+2 formula.

It should be evident by now that, if an investor waited until Sept. 7 to purchase Leon’s shares, the trade would have settled on Sept. 9, which is one day after the record date and too late to receive the $1.41 dividend.

In this case, Sept. 7 is the ex-dividend date, because anyone purchasing the stock on or after this date won’t receive the dividend. (If this is starting to get confusing, it may help to remember that, with a T+2 settlement period, the ex-dividend date is always one business day before the record date.)

Now, it’s no secret that I love dividends. But some investors love dividends so much they think they can game the system by purchasing shares before the ex-dividend date to make some easy money. But, as we’ll see with Leon’s, it doesn’t work that way.

If you look up the trading history for Leon’s on Globeinvestor.com, you’ll notice that the shares had an unusually large drop of $1.48 or 6 per cent on Sept. 7, the ex-dividend date. You’ll also notice the decline was very similar in size to the $1.41 dividend that buyers on (or after) the ex-dividend date will not receive. Coincidence? Nope.

In effect, the market was giving buyers on the ex-dividend date a 6-per-cent discount to make up for the fact that they aren’t entitled to the dividend.

The good news for the reader is that, by purchasing his shares before the ex-dividend date, he will receive the $1.41 dividend. The bad news is that, because his Leon’s shares subsequently dropped by roughly the value of the dividend, he’s no further ahead.

If making money were as simple as buying stocks before the ex-dividend date, we would all mortgage our homes and repeat the process over and over until we could retire in comfort on a private island. Unfortunately, in an efficient market, investing doesn’t offer that sort of free lunch.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

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