Special Dividend: Due Bill Process

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What is a Due Bill process

In some cases, spinoffs and special dividends may have different rules than standard distributions when it comes to the ex-dividend date. Typically, you will qualify for the dividend if you are the record holder on record date of the distribution. When an event carries a due bill, the ex-dividend date is after the record date, and any buys or sells placed after the record date are automatically tracked. The ex-dividend date becomes the day your total position is eligible for the event.

What happens?

Typically, an ex-dividend date will be after the record date and pay date in situations when a spinoff or special dividend is greater than 25% of the stock price.

What does this mean for you?

You will no longer be entitled to a distribution if you sell the stock after the record date, but before the ex-dividend date. In this case, the seller would be obligated to pay any received cash or shares to the buyer. This payout occurs automatically.

In the modern era of electronic trading, there's no extra step of the seller owing the buyer money; the party entitled to the dividend will receive the distribution directly.

This process is called Due Bill tracking.

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Due Bill tracking

A due bill determines a stock seller's obligation to deliver a pending dividend or another form of payment to the buyer of the stock.

It can also be used in other types of events, such as the issuance of rights and warrants, and stock splits.

Exceptions to the Due Bill process

The Due Bill process doesn’t apply in all cases. As a general rule, if the special dividend or spinoff is greater than 25% of the stock price, due bill process applies.

Some foreign stocks & dividends don’t follow the rule and some domestic stocks can be granted an exclusion. This means that there are cases where distributions that are less than 25% of the stock that will follow the due bill process.

If a particular security’s due bill process is made available, you can typically learn more by visiting the issuer’s Investor Relations website.

Reference No. 1407832
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