Which party is entitled to the dividend on a loaned stock position?

In a loaned stock position, the investor who originally owns the stock and has lent it out retains the entitlement to dividends. This is because the right to receive dividends pertains to ownership of the underlying stock. When the stock is loaned, the borrower receives the stock and may have rights to vote or sell it, but they do not obtain the right to any dividends declared while they are borrowing the stock.

The lender of the stock, however, is still considered the beneficial owner and thus is entitled to the dividends that would normally accrue during the loan period. To ensure that the lender receives their dividends when they are due, the borrower typically pays the lender an equivalent amount, known as a "manufactured dividend," which reflects the amount of any dividends expected during the period of the loan.

This understanding is critical for valuing positions affected by securities lending, and it clearly highlights the continuity of dividend rights with the original stockholder, despite the temporary transfer of the stock to a borrower.