If companies are passing out money in forms of dividends, it makes sense to take a number and get in line. Well, there’s a little more to it than that.
As Fool.com writer Lee Samaha wrote, “One of the first questions a newbie investor asks is ‘When do I get paid my dividend?’ The answer isn’t as simple as you might think. Dividends aren’t simply handed to registered shareholders on the day the dividend is paid.”
There are timing issues to consider.
So, what are the key dates for dividend payments?
Here are the big four, plus how the whole process works:
This is the date on which a company’s Board of Directors actually sets the amount of the next quarterly dividend. Typically it is many weeks in advance of the actual payout date. The amount is set and announced to the shareholders. The declaration is usually worded something like this:
On June 2, 2017, the company will pay a dividend of X cents to shareholders of record as of May 15.
In the above example May 15 is the Record Date. That’s the day that a person has to actually own shares in the company in order to receive the declared dividend. Essentially a big list of shareholders is drawn up on that date and checks are sent to those owners. Now, you will immediately be wondering “what about people who trade on that day?” Good question. Keep reading.
In today’s electronic reality, the record date isn’t what it used to be. (Imagine rows of clerks compiling lists of shareholders by hand.) Transactions occur so fast that we are actually down to a Record Instant.
The stock exchanges have stepped in to make the process work efficiently by declaring an ex-dividend date. On that date, actually at the instant the market opens, the stock is declared ex-dividend, “ex” meaning “without” dividend.
Two things happen. First an x goes next to the stock symbol to let anyone buying it know that they won’t be receiving the dividend. Second, all pending orders to buy or sell are reduced by the amount of the dividend unless the buyer or seller has specified otherwise (by using a Do Not Reduce order). The price is reduced because the value of the company has just been directly reduced by the amount of the dividend.
The ex-dividend date is two market days (weekends and market holidays are not counted) before the record date to give all orders time to settle by the record date.
Checks go out.
Click the link for a list of ex-dividend dates for companies trading on the Nasdaq exchange.
Barron’s also keeps a calendar of ex-dividend dates.
For more on the topic and to walk through a real-life example, take a look at Lee’s full article, “What Ex-Dividend Means and Why It Matters.”
Also of interest, one of The Motley Fool’s subscription services, Income Investor, guides you in selecting dividend-producing stocks. Take a look at our 30-day trial offer to the newsletter here.