Investors wanting to reap the rewards of stock dividend payments need to remain aware of several dates and how each relates to receiving the upcoming payable dividends on shares of stock. Four dates that relate to who receives the dividends on stock are the declaration date, the record date, the ex-dividend or ex date, and the dividend payment or distribution date. Knowing what each date means will let you know how long you must hold a stock to receive the dividend income.
When the board of directors of a public company decides it to be in the best interest of shareholders and the company's future to pay a dividend, the group makes an announcement declaring a dividend. This date is known as the declaration date, when the company's board of directors initially announces that a forthcoming dividend will be paid.
Following the declaration of a dividend, the board of directors of the publicly owned company will set a record date. This record date is used to determine stockholders who will be entitled to receive the payable dividends. Investors must own shares of the stock on the record date to be eligible for dividend payments.
The stock exchange where shares of the stock are traded, or in some cases, the National Association of Securities Dealers, will establish an ex-dividend date for the stock. This ex date, as it is often called, is generally two days prior to the record date, according to the U.S. Securities and Exchange Commission. Ex-dividend refers to "exclusive of dividends," meaning traders dealing in shares of the particular stock during this period are trading with no right to the upcoming dividend. Investors who buy shares of a stock after the ex-dividend date will not be eligible to receive the upcoming dividend but may hold the shares until the next record date to receive the following dividend, if applicable. The purpose of setting an ex-dividend date for stock shares is to prevent traders from causing large swings in the price of the stock through buying for the dividend and selling once the dividend payable date is past.
The dividend payable date is also called the distribution date. This is the actual date when stockholders of record are paid. If you are the stockholder of record on the official record date, you are entitled to the dividend even if you sell the shares prior to the distribution date, which is when dividends are actually paid. However, when a company declares a dividend and the exchanges set the ex-dividend date, the price of shares of the stock generally declines by the dividend amount, as the market prices in the information.
- Auburn University: Financial Accounting: Chapter 11 Reporting and Analyzing Stockholders' Equity
- Investment Analysis and Portfolio Management; Fifth Edition; Frank K. Reilly and Keith C. Brown; 1997
- Mansfield University of Pennsylvania: Chapter 13: Capital Structure and Dividends
- U.S. Securities and Exchange Commission: Ex-Dividend Dates