Why do dates matter?
Dividend dates can affect when you buy and sell shares, how much you could potentially be paid, and certainly, when your dividend will be paid. Dividends involve four dates.
Will you get the dividend?
Although the ex-date tends be what causes investors some confusion, it is actually quite straightforward. If you purchase the shares before the ex-date, you will receive the dividend payment. However, if you purchase shares ON or after the ex- date, you will not be eligible to receive this dividend payment. Although, you would be able to receive any future dividends.
In an effort to get the payment, many people may want to buy shares after a company announces that it will be paying a dividend. And as a result, the stock’s price will typically increase between the declaration date and ex-dividend date. This increase will usually be about the same amount of the dividend payment.
Conversely, after the ex-date has passed, the stock’s price should decline by the amount of the dividend. Just like some people may want to buy prior to the dividend, some may want to sell after the dividend.
One other interesting point about the ex-dividend date. All else being equal, a stock’s market price should drop by the payment amount per share on the ex-dividend date. It is at this point, the cash moves from an asset on the company’s balance sheet to a liability owed to its shareholders.
If you want to sell your shares and still receive your dividend payment. You must wait until the ex-date to sell. As long as you are a shareholder of record the day BEFORE the ex-dividend date, you will receive a payment.
The Record Date
Two to three days after the ex-date will be the record date. The record date is just like it sounds. It is the day the company checks its books and only shareholders of record to receive the dividend payment.
The delay between the ex-date and the record date is due to the trade settlement period. Through the advancement of electronic trading, brokers show a real-time share quantity in your brokerage account. However, behind the scenes your trades can take up to two days to become official.
The Payment Date
Within 30 days after the record date is everyone’s favorite date – the payment date. This is the date the dividend payment is transferred to shareholders. In today’s world, this is almost always an electronic transfer to your brokerage account.
Keep in mind, although these dates are certainly important to understand. Long-term investors, especially those who consider themselves buy and hold investors, will not be as affected by things like an ex-dividend date.
Regardless, as a dividend investor, you will be benefitted by understanding what takes place from the time a company announces a dividend until you receive it.