I received a question from a reader who must be interested in participating in Sycamore Networks' (SCMR) massive special dividend. When it comes to dividends and special dividends, investors are trained to look for the ex-dividend date (the demarcation date that determines which shareholders receive the dividends and which do not), which is two or three days before the record date. Not in this case!
In Sycamore's case, the ex-dividend date is not only after the record date, but also after the payable date!
So, what gives? A careful reading of the Nasdaq Uniform Practice Code reveals that while the ex-dividend date normally falls before the record date, there is a circumstance in which it should fall after the payable date:
Normal Ex-Dividend, Ex-Warrants Dates
(1) In respect to cash dividends or distributions, or stock dividends, and
the issuance or distribution of warrants, which are less than 25% of the value of
the subject security, if the definitive information is received sufficiently in
advance of the record date, the date designated as the “ex-dividend date” shall be
the second business day preceding the record date if the record date falls on a
business day, or the third business day preceding the record date if the record date
falls on a day designated by Nasdaq Regulation as a non-delivery date.
(2) In respect to cash dividends or distributions, stock dividends and/or
splits, and the distribution of warrants, which are 25% or greater of the value of
the subject security,the ex-dividend date shall be the first business day following the payable date.
My take from this rule is that when a company's payout is deemed rather large, the normal rules don't apply so that investors not familiar with the payout dates don't get taken in a big way. In Sycamore's case, it would appear that even though an investor may be on register at the record date, he is still liable to pay out the proceeds from the special dividend up until the day after the cash is actually paid out!
An investor who doesn't pay attention to this quirk might be willing to sell shares of Sycamore for a major discount following the record date. Don't do that!
Disclosure: No position