Key dates to remember regarding dividend payouts
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What are the Important Dividend Dates?
In order to understand dividend-paying stocks, knowledge of important dividend dates is crucial. A dividend typically comes in the form of a cash distribution that is paid from the company’s earnings to investors. Instead of reinvesting cash back into the business, a company may choose to transfer value to shareholders by means of a dividend.
Key Dividend Dates
There are four key dates to keep in mind when holding a dividend-paying stock:
1. Declaration Date
The declaration date is the date on which the board of directors announces and approves the payment of a dividend. The declaration includes the size of the dividend being issued and outlines the record date and payment date.
For example: On October 18, 2018 (declaration date), Coca-Cola Co. declared a dividend of $0.3900 per share (size of dividend) payable on December 14, 2018 (payment date) to shareholders of record as of November 30, 2018 (record date).
2. Ex-Dividend Date
The ex-dividend date is the first day that a stock trades without a dividend. The company does not set the ex-dividend date – the ex-dividend date is set by the stock exchange where the company’s stock is traded. The ex-dividend date typically occurs up to three days before the record date. Purchasers of shares on or after the ex-dividend date are not entitled to a dividend.
For example, the ex-dividend date for Coca-Cola is November 29, 2018, which is one day before the record date.
3. Record Date
The record date, also known as the date of record, is the date on which the investor must be on the company’s books in order to receive a dividend.
The record date is commonly confused with the ex-dividend date. Recall that the record date is set by the company and the ex-dividend date is set by the stock exchange. The ex-dividend date is earlier than the record date due to the fact that there is a settlement period for stock trades on exchanges.
Consider the following: when an investor purchases a stock on an exchange, it takes time for the investor’s information to be updated on the company’s books. Most North American financial products are on a t+2 settlement period. In other words, it takes two business days for a stock trade to settle.
For example, the ex-dividend date for Coca-Cola is November 29, 2018, while the record date is November 30, 2018. In addition, the settlement period is t+2.
- A stock purchaser of Coca Cola stock on November 29, the ex-dividend date, would not be entitled to a dividend because the trade would settle on December 1 (past the record date).
- A stock purchaser of Coca-Cola stock on November 28, the day before the ex-dividend date, would be entitled to a dividend because the trade would settle on November 30, so the investor would be on the company’s books on the record date.
4. Payment Date
The payment date is the date on which the dividend is paid to shareholders. Dividend payments may be either mailed or electronically transferred to the accounts of shareholders.
For example, the dividend payable date for Coca-Cola is December 14, 2018. On December 14, shareholders of Coca-Cola before the ex-dividend date would receive a dividend of $0.3900 per share.
Additional Resources
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FAQs
Answer and Explanation:
What are the important dates in dividends? ›
There are four dates to know when it comes to companies' dividends: the declaration date, the ex-dividend date, the record date, and the payable date. On the ex-dividend date, stock prices typically decline by the amount of the dividend.
What are the key dates for dividends? ›
There are four key dates to keep in mind when holding a dividend-paying stock:
- Declaration Date. The declaration date is the date on which the board of directors announces and approves the payment of a dividend. ...
- Ex-Dividend Date. ...
- Record Date. ...
- Payment Date.
For some, cash dividends are a crucial for their retirement income; for others, it's just another source of return on the stock. Stock dividends have key dates that investors must understand otherwise they will miss out on payments. The three dates are the date of declaration, date of record, and date of payment.
What is the 25 special dividend rule? ›
If the dividend is 25% or more of the stock value, special rules apply to the determination of the ex-dividend date. In these cases, the ex-dividend date will be deferred until one business day after the dividend is paid.
How do you understand dividend dates? ›
The declaration date is when a company states its plans to issue a dividend. The record date is when the company determines which shareholders are entitled to a dividend. The ex-dividend date is usually the day before the record date. The payment date is the day when dividend payments are made.
Why is the record date important for dividends? ›
The record date, also known as the date of record, is when a company offering a dividend or distribution establishes its list of shareholders who will receive the payout. The record date generally occurs a day after the ex-dividend date, the first trading day when new buyers no longer qualify for the dividend.
What is effective dividend date? ›
The ex-date or ex-dividend date is the trading date on (and after) which the dividend is not owed to a new buyer of the stock. The ex-date is one business day before the date of record. The date of record is the day on which the company checks its records to identify shareholders of the company.
What are the three significant dates of a cash dividend? ›
Answer and Explanation: The three significant cash dividend dates are (in order) the dates of c) declaration, record, and distribution. The board meets and determines whether or not to declare a dividend from the previous quarter and how much should be issued to each share.
Which date is considered for dividend? ›
Ex-date and record date are two dates on which the dividends are determined for the shareholders.
Dividend chronology describes the timeline for a series of events which take place after a company decides to pay dividends to its shareholders. Included in this chronology are the declaration date, ex-dividend date, record date and payment date, in that time order.
What is the 3 dividend model? ›
Modigliani and Miller's dividend irrelevancy theory.
- The dividend valuation model. This states that the value of a company's shares is sustained by the expectation of future dividends. ...
- The Gordon growth model. This model examines the cause of dividend growth. ...
- Modigliani and Miller's dividend irrelevancy theory.
Preferred stocks have a different holding period than common stocks and investors must hold preferred stocks for more than 90 days during a 181-day period that starts 90 days before the ex-dividend date. 2The holding period requirements are somewhat different for mutual funds.
What is the 45 day rule for dividends? ›
The 45 day rule (sometimes called dividend stripping) requires shareholders to have held the shares 'at risk' for at least 45 days (plus the purchase day and sale day) in order to be eligible to claim franking credits in their tax returns.
What is 5% dividend rule? ›
If a company issues a 5% stock dividend, it would increase the number of shares by 5%, or one share for every 20 shares owned. If a company has one million shares outstanding, this would translate into an additional 50,000 shares. A shareholder with 100 shares in the company would receive five additional shares.
What is the rule 3 of payment of dividends? ›
Rule 3 of Dividend Rules prescribes the conditions to be complied with for declaring dividend out of reserves. A pertinent question here is – whether a company can declare dividend out of 100% of the amount that has been transferred to General Reserve.
Is it better to buy before or after the ex-dividend date? ›
The stock price drops by the amount of the dividend on the ex-dividend date. Remember, the ex-dividend date is the day before the record date. If investors want to receive a stock's dividend, they have to buy shares of stock before the ex-dividend date.
What time of year are most dividends paid? ›
Most stocks that pay dividends pay them every three months, after the company releases its quarterly earnings report. However, others pay their dividends every six months (semi-annually) or once a year (annually). Some stocks also pay monthly, or on no set schedule — these are termed "irregular" dividends.
