Corporate actions & dividends

Dividends

A dividend is the distribution of a portion of a company's profits or cash reserves to its shareholders. Dividends are often paid in cash, though some companies pay them in additional shares instead. Many companies pay dividends quarterly, though some pay monthly, semi-annually, or as one-time special dividends.

To receive a dividend, you must own the stock before its ex-dividend date.

Record date and ex-dividend date

When a company declares a dividend, it sets a record date: the date you must be a shareholder on the company's books to receive the dividend. The ex-dividend date is then set based on the record date: it's usually the same day as the record date, or one business day earlier if the record date falls on a weekend or holiday.

If you buy a stock on or after its ex-dividend date, you won't receive the upcoming dividend; the seller does. If you buy before the ex-dividend date, you will.

Example 1: record date on a business day

On March 2nd, Company XYZ declares a dividend payable March 17th to shareholders of record by March 16th. March 16th is a Monday, so the ex-dividend date falls on the same day. Anyone who buys on or after March 16th won't receive the dividend. Anyone who buys before that date will.

Example 2: record date on a non-trading day

On March 2nd, Company XYZ declares a dividend payable March 17th to shareholders of record by March 15th, which is a Sunday. Since it's a Sunday, the ex-dividend date moves to the prior business day, Friday, March 13th. Anyone who buys on or after March 13th won't receive the dividend. Anyone who buys before that date will.

Special (large) dividends

If a dividend equals 25% or more of the stock's value, the ex-dividend date works differently: it's deferred until one business day after the dividend is paid, rather than being set before the payable date like a regular dividend. In practice, this means you can sell the stock after the record date and still be entitled to the dividend, as long as you sell before that later ex-dividend date.

Stock dividends

Occasionally, a company pays a dividend in additional shares rather than cash. These shares may be in the company itself or in a subsidiary being spun off, and the procedures for stock dividends can differ from cash dividends. The ex-dividend date is set the first business day after the stock dividend is paid (and always after the record date).

Where corporate action proceeds land

If a corporate action (like a spinoff or warrant issuance) affects a position held inside one of your direct index or other managed strategies, the resulting shares or cash are typically credited to the strategy itself. The strategy's algorithm then manages that position like any other holding, working it into future rebalances so the strategy continues tracking its benchmark.

Stock splits

Forward stock split

A forward stock split occurs when a company increases the number of shares it has outstanding in the market. A stock split doesn't change the total value of your position, since the stock's market price adjusts accordingly.

For example, you own 100 shares of ABC at $10 per share (total value of $1,000), and ABC undergoes a 10 for 1 (10:1) forward stock split. After the split, you'll own 1,000 shares of ABC at $1 a share (remaining at a value of $1,000).

If the split ratio doesn't divide evenly into your share count, you may receive a fractional share, or be paid cash in lieu of one, for the leftover position.

Reverse stock split

A reverse stock split occurs when a company reduces the number of shares it has outstanding in the market. A stock split doesn't change the total value of your position, since the stock's market price adjusts accordingly.

For example, you own 100 shares of ABC at $10 per share (total value of $1,000), and ABC undergoes a 1 for 10 (1:10) reverse stock split. After the split, you'll own 10 shares of ABC at $100 a share (remaining at a value of $1,000).

If the split ratio doesn't divide evenly into your share count, you may receive a fractional share, or be paid cash in lieu of one, for the leftover position.

Mergers and acquisitions

When a company merges with or acquires another company, shareholders of the acquired company can receive shares, cash, or a combination of the two as payment for their shares.

For example, say Firm ABC is buying out Firm XYZ:

Delisting (OTC stocks)

A delisting occurs when a symbol is halted and removed from trading on an exchange. Delisted symbols often begin trading on OTC markets.

If you own a delisted symbol, you may transfer it out to another broker or reach out to support to assist with liquidation. You can't purchase OTC-traded symbols or borrow against them.

Voluntary corporate actions

A company may participate in a voluntary corporate action for its shareholders. This may include the company repurchasing shares or selling newly issued shares at a specified price. These offers are typically only for existing shareholders and may come with an expiration date. A few examples of voluntary corporate actions:

Tender offer

A tender offer allows existing shareholders to sell their shares (also known as tendering their shares) at a specified price. Existing shareholders will receive a notice and terms of the tender via mail or email. If you receive a notice, you're not obligated to tender your shares.

If you do wish to tender your shares, please contact support with your instructions at least 1 business day before the tender expiration date (found on your notice). Instructions submitted after that are processed on a best-effort basis.

Rights offering

When a company decides to offer new shares of an existing stock to the public, it can issue a rights offering. A right gives existing shareholders the chance to purchase shares of the new offering at a set price before they're offered to the public. Rights have an expiration date and are usually issued for a short period of time.

Warrants

A warrant is an asset that allows its owner to buy stock in the company that issued the warrant at a fixed price, called the exercise or subscription price. Warrants are usually issued for a longer term, with an expiration date several years in the future.