What is a ‘Dividend’?

A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

A company’s net profits can be allocated to shareholders via a dividend. Larger, established companies tend to issue regular dividends as they seek to maximize shareholder wealth in ways aside from supernormal growth.

The timing of the buying/selling is the most important factor for these investors. You don’t want to buy these stocks if you won’t be getting any dividend. For example, if you buy these stocks after a certain time, the previous seller might get the dividend as he was holding the stock when the company was recording the name of the shareholder before distribution of dividends.

Understanding the dates mentioned in the press conference is quite important for the investors as it decides the timing of trading of these dividend stocks.  In general, there are 4 important dividend dates that every investor should know.

  • Dividend Declaration Date
  • Record Date
  • Ex-Dividend Date
  • Payment Date

Among the all four, the Ex-Dividend day is of uttermost importance.

Dividend Declaration Date
This is the date on which the company’s board of directors declare the dividends for the stockholders. The conference includes the date of dividend distribution, size of the dividend and the record date.

Record Date
On the dividend declaration day, the company also announces the record date. The record date is the date on which your name should be present on the company’s list of shareholders i.e. record book, to get the dividend. Shareholders who are not registered as of this date on the company’s record book will not receive the dividend. According to the company, you are only eligible to get the dividends, if your name is on their book till this record date.

Ex-Dividend Date
The Ex-dividend date is usually two days before the record date. In order to be able to get the dividend, you will have to purchase the stock before the ex-dividend date. If you buy the stock on or after the Ex-dividend date, then you won’t get the dividend, instead the previous seller will get the dividend.After the company sets the date of record, the ex-dividend date is set by the stock exchange. So, the two days before the record date is generally used by the stock exchange to give the name of the shareholders to the company. The investors who buy the stock on or after the ex-dividend date won’t be listed on the record book of the company. So, if you purchase a stock on or after the ex-dividend date, you won’t receive a dividend until it is declared for the next time period.

Payment Date
This is the date set the by company, on which the dividends are deposited are paid to the stockholders. Only those stock holders whose buy the stock before the Ex-dividend date are entitled to get the dividend.