diff --git "a/8ddcf0d9-f3be-4bba-b4c3-dc1fd65a480b.json" "b/8ddcf0d9-f3be-4bba-b4c3-dc1fd65a480b.json" new file mode 100644--- /dev/null +++ "b/8ddcf0d9-f3be-4bba-b4c3-dc1fd65a480b.json" @@ -0,0 +1,40 @@ +{ + "interaction_id": "8ddcf0d9-f3be-4bba-b4c3-dc1fd65a480b", + "search_results": [ + { + "page_name": "How and When Are Stock Dividends Paid Out?", + "page_url": "https://www.investopedia.com/ask/answers/102714/how-and-when-are-stock-dividends-paid-out.asp", + "page_snippet": "A dividend is usually declared quarterly after a company finalizes its income statement and dividends are paid either by check or in additional shares of stock.A dividend is the distribution of some of a company's earnings as cash to a class of its shareholders. Dividends typically are credited to a brokerage account or paid in the form of a dividend check. The dividend check is mailed to stockholders but can be direct-deposited to a shareholder's account of choice, if preferred. Dividends are a way for companies to distribute profits to their shareholders, but not all companies pay dividends. Some companies may decide to retain their earnings to re-invest for growth opportunities instead. The ex-date, or ex-dividend date, is the date on or after which a security is traded without a previously declared dividend or distribution. more \u00b7 What Does Ex-Dividend Mean, and What Are the Key Dates? The record date is the last date on which shareholders are eligible to receive a dividend or distribution. It's established by the company's board. more \u00b7 Dividend Arbitrage: What It Is, How It Works, and Example", + "page_result": "\n\t\t\t\t\n\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t \n \n \n\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\nHow and When Are Stock Dividends Paid Out?\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\t\t\t\t\t\n\t\t\t\t\t\t\t\n\n\t\t\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n
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\n\nTable of Contents\n
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\n\nTable of Contents\n\n\n\n
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    \n
  • \n
    \nKey Dividend Dates\n
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    • \n
  • \n
    \nHow Dividends Are Paid\n
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    \nWhen Dividends Are Paid\n
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    \nDividend Reinvestment Plan (DRIP)\n
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  • \n
    \nTax Implications\n
    \n
    • \n
  • \n
    \nFAQs\n
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  • \n
    \nThe Bottom Line\n
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    \n
  • \nStocks\n\n\n\n
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  • \nDividend Stocks\n
    • \n
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\n

\nHow and When Are Stock Dividends Paid Out?

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\nBrian Beers is a digital editor, writer, Emmy-nominated producer, and content expert with 15+ years of experience writing about corporate finance & accounting, fundamental analysis, and investing.\n
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Updated February 12, 2024
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\n\n\n\nReviewed by\n\nSamantha Silberstein\n
\nFull Bio\n
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\nSamantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.\n
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\n\n\n\nFact checked by\n\nTimothy Li\n
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\nTimothy Li is a consultant, accountant, and finance manager with an MBA from USC and over 15 years of corporate finance experience. Timothy has helped provide CEOs and CFOs with deep-dive analytics, providing beautiful stories behind the numbers, graphs, and financial models.\n
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\nIf a company enjoys a profit and decides to pay a dividend to common shareholders, then it declares the dividend, the amount, and the date when it will be paid out to the shareholders.\n

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\nUsually, dividend amounts and related dates are determined on a quarterly basis, after a company finalizes its income statement and the board of directors meets to review the company's financials.\n

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\nSome companies with solid histories of paying dividends have established quarterly dividend payment dates. For example, IBM usually pays its dividends on the 10th of March, June, September, and December.\n

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\nKey Takeaways

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  • A dividend is a payment of some of a company's earnings to a class of its shareholders.
  • The payment date and amount are determined on a quarterly basis once the board of directors reviews a company's financials.
  • You must buy shares before the ex-date to receive the declared dividend.
  • The record date is the day on which you must be on the company\u2019s books as a shareholder to receive the declared dividend.
  • The payment date is the day the company pays the declared dividend to shareholders who own the stock before the ex-date.
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Key Dividend Dates

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\nIf a dividend is declared, all qualified shareholders of the company are notified via a press release. The information is usually reported through\u00a0major stock quoting services for easy reference. The key dividend dates that an investor should be aware of are:\n

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  • The declaration date: The date that the dividend is declared and the dividend amount, ex-date, record date, and payment date are set.
    • \n
  • The ex-dividend date: The date (aka ex-date) before which an investor must have purchased the stock to receive the upcoming dividend. On this day, the stock begins trading ex-dividend (or, without the dividend).
    • \n
  • The record date: The date that determines all shareholders of record who are entitled to the dividend payment. This date usually occurs two days after the ex-date.
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  • The payment date: This is the day dividend payments are issued to shareholders and is usually about one month after the record date.
    • \n
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How Dividends Are Paid

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\nA dividend is the distribution of some of a company's earnings as cash to a class of its shareholders. Dividends typically are credited to a brokerage account or paid in the form of a dividend check. The dividend\u00a0check is mailed to stockholders but can be direct-deposited to a shareholder's account of choice, if preferred.\n

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\nThe alternative to cash dividends is additional shares of stock. This is known as dividend reinvestment. Dividend reinvestment plans (DRIPs) are commonly offered by individual companies and mutual funds.\n

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Once a dividend is announced on the declaration date, the company has a legal responsibility to pay it.

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When Dividends Are Paid

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\nOn the payment date, the company deposits the funds for disbursement to shareholders with the Depository Trust Company (DTC). Cash payments are then disbursed by the DTC to brokerage firms around the world where shareholders have accounts that hold the company's shares. The recipient firms appropriately apply cash dividends to client accounts, or process reinvestment transactions, as per a client's instructions.\n

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\nMailed checks should be received within a few days of the payment date.\n

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Dividend Reinvestment Plan (DRIP)

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\nA dividend reinvestment plan (DRIP) offers a number of advantages to investors. If the investor prefers to build their current equity holdings using funds from dividend payments, automatic dividend reinvestment simplifies this process (as compared to receiving the dividend payment in cash and then using the cash to purchase additional shares).\n

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\nCompany-operated DRIPs are usually commission-free, since they bypass a broker. This feature is particularly appealing to small investors since commission fees are proportionately larger for smaller purchases of stock.\n

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\nAnother potential benefit of DRIPs is that some companies offer stockholders the option to purchase additional shares in cash at a discount. With a discount from 1% to 10%, plus the added benefit of not paying commission fees, investors can acquire additional stock holdings at an advantageous cost (compared to buying shares in cash through a brokerage firm).\n

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Tax Implications of Dividends

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\nDividends are always considered taxable income by the Internal Revenue Service (IRS), regardless of the form in which they are paid.\n

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\nSpecific tax implications for the dividend payments vary depending on the type of dividend declared, account type in which the shareholder owns the shares, and how long the shareholder has owned the shares. Dividend payments are summarized for each tax year on Form 1099-DIV.\n

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What Is a Dividend?

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A dividend is a payment that a company chooses to make to shareholders when the company has a profit. Companies can either reinvest their earnings in themselves or share some (or all) with its investors. Dividends represent income for investors and are the primary goal for many.

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Are Dividends a Return on Investment?

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Yes, dividends are considered a part of what's referred to as total return, which is income produced by an investment (e.g., dividends, interest) plus the appreciation of the investment's price.

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Why Is the Ex-Dividend Date Important to Know?

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Investors who wish to buy shares in companies in order to receive a recently announced dividend payment have until the day before the ex-dividend date (or ex-date) to make their purchase. If they buy on or after the ex-date, they won't be on the company's records as a shareholder in time to receive the upcoming dividend.

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The Bottom Line

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\nDividends are a way for companies to distribute profits to their shareholders, but not all companies pay dividends. Some companies may decide to retain their earnings to re-invest for growth opportunities instead.\n

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\nIf dividends are to be paid, a company will declare the amount of the dividend and all relevant dates. Then, all holders of the stock (by the ex-date) will be paid accordingly on the upcoming payment date. Investors who receive dividends can choose to take them as cash or as additional shares.\n

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\nArticle Sources
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    \n

  1. IBM Investor Relations. "When are IBM dividends typically paid?"

    2. \n

  2. Internal Revenue Services. "Topic No. 404, Dividends."

    3. \n
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\nRelated Terms
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\nPayment Date for Dividends: Overview, Key Dates, and Examples\n
\nThe payment date is the date set by a company when it will issue payment on the stock's dividend.
\nmore\n
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\nWhat Does Ex-Dividend Mean, and What Are the Key Dates?\n
\nEx-dividend is a classification in stock trading that indicates when a declared dividend belongs to the seller rather than the buyer.
\nmore\n
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\nEx-Dividend Date: Definition, Key Dates, and Example\n
\nThe ex-date, or ex-dividend date, is the date on or after which a security is traded without a previously declared dividend or distribution.
\nmore\n
\n
\n
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\nDividend Arbitrage: What It Is, How It Works, and Example\n
\nDividend arbitrage is an options trading strategy that involves purchasing puts and stock before the ex-dividend date and then exercising the put.
\nmore\n
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\nWhat Is the Record Date and Why Is It Important? Plus an Example\n
\nThe record date is the last date on which shareholders are eligible to receive a dividend or distribution. It's established by the company's board.
\nmore\n
\n
\n
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\nDividends: Definition in Stocks and How Payments Work\n
\nA dividend is a distribution of earnings, often quarterly, by a company to its shareholders in the form of cash or stock reinvestment.
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\t\t\n\n\t\t\n", + "page_last_modified": "" + }, + { + "page_name": "How and When Are Stock Dividends Paid Out?", + "page_url": "https://www.investopedia.com/ask/answers/102714/how-and-when-are-stock-dividends-paid-out.asp", + "page_snippet": "A dividend is usually declared quarterly after a company finalizes its income statement and dividends are paid either by check or in additional shares of stock.A dividend is the distribution of some of a company's earnings as cash to a class of its shareholders. Dividends typically are credited to a brokerage account or paid in the form of a dividend check. The dividend check is mailed to stockholders but can be direct-deposited to a shareholder's account of choice, if preferred. Dividends are a way for companies to distribute profits to their shareholders, but not all companies pay dividends. Some companies may decide to retain their earnings to re-invest for growth opportunities instead. The ex-date, or ex-dividend date, is the date on or after which a security is traded without a previously declared dividend or distribution. more \u00b7 What Does Ex-Dividend Mean, and What Are the Key Dates? The record date is the last date on which shareholders are eligible to receive a dividend or distribution. It's established by the company's board. more \u00b7 Dividend Arbitrage: What It Is, How It Works, and Example", + "page_result": "\n\t\t\t\t\n\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t \n \n \n\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\nHow and When Are Stock Dividends Paid Out?\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\t\t\t\t\t\n\t\t\t\t\t\t\t\n\n\t\t\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n
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\n\nTable of Contents\n
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\n\nTable of Contents\n\n\n\n
\n
    \n
  • \n
    \nKey Dividend Dates\n
    \n
    • \n
  • \n
    \nHow Dividends Are Paid\n
    \n
    • \n
  • \n
    \nWhen Dividends Are Paid\n
    \n
    • \n
  • \n
    \nDividend Reinvestment Plan (DRIP)\n
    \n
    • \n
  • \n
    \nTax Implications\n
    \n
    • \n
  • \n
    \nFAQs\n
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    \nThe Bottom Line\n
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  • \nStocks\n\n\n\n
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  • \nDividend Stocks\n
    • \n
\n
\n

\nHow and When Are Stock Dividends Paid Out?

\n
\n
\n
\n
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\nBy\n
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\nFull Bio\n
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\nBrian Beers is a digital editor, writer, Emmy-nominated producer, and content expert with 15+ years of experience writing about corporate finance & accounting, fundamental analysis, and investing.\n
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\nLearn about our \neditorial policies\n
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Updated February 12, 2024
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\n\n\n\nReviewed by\n
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\n
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\n\n\n\nReviewed by\n\nSamantha Silberstein\n
\nFull Bio\n
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\nSamantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.\n
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\nIf a company enjoys a profit and decides to pay a dividend to common shareholders, then it declares the dividend, the amount, and the date when it will be paid out to the shareholders.\n

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\nUsually, dividend amounts and related dates are determined on a quarterly basis, after a company finalizes its income statement and the board of directors meets to review the company's financials.\n

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\nSome companies with solid histories of paying dividends have established quarterly dividend payment dates. For example, IBM usually pays its dividends on the 10th of March, June, September, and December.\n

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\nKey Takeaways

\n
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  • A dividend is a payment of some of a company's earnings to a class of its shareholders.
  • The payment date and amount are determined on a quarterly basis once the board of directors reviews a company's financials.
  • You must buy shares before the ex-date to receive the declared dividend.
  • The record date is the day on which you must be on the company\u2019s books as a shareholder to receive the declared dividend.
  • The payment date is the day the company pays the declared dividend to shareholders who own the stock before the ex-date.
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Key Dividend Dates

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\nIf a dividend is declared, all qualified shareholders of the company are notified via a press release. The information is usually reported through\u00a0major stock quoting services for easy reference. The key dividend dates that an investor should be aware of are:\n

\n
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    \n
  • The declaration date: The date that the dividend is declared and the dividend amount, ex-date, record date, and payment date are set.
    • \n
  • The ex-dividend date: The date (aka ex-date) before which an investor must have purchased the stock to receive the upcoming dividend. On this day, the stock begins trading ex-dividend (or, without the dividend).
    • \n
  • The record date: The date that determines all shareholders of record who are entitled to the dividend payment. This date usually occurs two days after the ex-date.
    • \n
  • The payment date: This is the day dividend payments are issued to shareholders and is usually about one month after the record date.
    • \n
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How Dividends Are Paid

\n

\nA dividend is the distribution of some of a company's earnings as cash to a class of its shareholders. Dividends typically are credited to a brokerage account or paid in the form of a dividend check. The dividend\u00a0check is mailed to stockholders but can be direct-deposited to a shareholder's account of choice, if preferred.\n

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\nThe alternative to cash dividends is additional shares of stock. This is known as dividend reinvestment. Dividend reinvestment plans (DRIPs) are commonly offered by individual companies and mutual funds.\n

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Once a dividend is announced on the declaration date, the company has a legal responsibility to pay it.

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When Dividends Are Paid

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\nOn the payment date, the company deposits the funds for disbursement to shareholders with the Depository Trust Company (DTC). Cash payments are then disbursed by the DTC to brokerage firms around the world where shareholders have accounts that hold the company's shares. The recipient firms appropriately apply cash dividends to client accounts, or process reinvestment transactions, as per a client's instructions.\n

\n
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\nMailed checks should be received within a few days of the payment date.\n

\n
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Dividend Reinvestment Plan (DRIP)

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\nA dividend reinvestment plan (DRIP) offers a number of advantages to investors. If the investor prefers to build their current equity holdings using funds from dividend payments, automatic dividend reinvestment simplifies this process (as compared to receiving the dividend payment in cash and then using the cash to purchase additional shares).\n

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\nCompany-operated DRIPs are usually commission-free, since they bypass a broker. This feature is particularly appealing to small investors since commission fees are proportionately larger for smaller purchases of stock.\n

\n
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\nAnother potential benefit of DRIPs is that some companies offer stockholders the option to purchase additional shares in cash at a discount. With a discount from 1% to 10%, plus the added benefit of not paying commission fees, investors can acquire additional stock holdings at an advantageous cost (compared to buying shares in cash through a brokerage firm).\n

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Tax Implications of Dividends

\n

\nDividends are always considered taxable income by the Internal Revenue Service (IRS), regardless of the form in which they are paid.\n

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\nSpecific tax implications for the dividend payments vary depending on the type of dividend declared, account type in which the shareholder owns the shares, and how long the shareholder has owned the shares. Dividend payments are summarized for each tax year on Form 1099-DIV.\n

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\n\n

What Is a Dividend?

\n

A dividend is a payment that a company chooses to make to shareholders when the company has a profit. Companies can either reinvest their earnings in themselves or share some (or all) with its investors. Dividends represent income for investors and are the primary goal for many.

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\n\n

Are Dividends a Return on Investment?

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Yes, dividends are considered a part of what's referred to as total return, which is income produced by an investment (e.g., dividends, interest) plus the appreciation of the investment's price.

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\n\n

Why Is the Ex-Dividend Date Important to Know?

\n

Investors who wish to buy shares in companies in order to receive a recently announced dividend payment have until the day before the ex-dividend date (or ex-date) to make their purchase. If they buy on or after the ex-date, they won't be on the company's records as a shareholder in time to receive the upcoming dividend.

\n
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The Bottom Line

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\nDividends are a way for companies to distribute profits to their shareholders, but not all companies pay dividends. Some companies may decide to retain their earnings to re-invest for growth opportunities instead.\n

\n
\n

\nIf dividends are to be paid, a company will declare the amount of the dividend and all relevant dates. Then, all holders of the stock (by the ex-date) will be paid accordingly on the upcoming payment date. Investors who receive dividends can choose to take them as cash or as additional shares.\n

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\nInvestopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our\neditorial policy.\n
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  1. IBM Investor Relations. "When are IBM dividends typically paid?"

    2. \n

  2. Internal Revenue Services. "Topic No. 404, Dividends."

    3. \n
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\nRelated Terms
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\n
\nPayment Date for Dividends: Overview, Key Dates, and Examples\n
\nThe payment date is the date set by a company when it will issue payment on the stock's dividend.
\nmore\n
\n
\n
\n
\nWhat Does Ex-Dividend Mean, and What Are the Key Dates?\n
\nEx-dividend is a classification in stock trading that indicates when a declared dividend belongs to the seller rather than the buyer.
\nmore\n
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\nEx-Dividend Date: Definition, Key Dates, and Example\n
\nThe ex-date, or ex-dividend date, is the date on or after which a security is traded without a previously declared dividend or distribution.
\nmore\n
\n
\n
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\nDividend Arbitrage: What It Is, How It Works, and Example\n
\nDividend arbitrage is an options trading strategy that involves purchasing puts and stock before the ex-dividend date and then exercising the put.
\nmore\n
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\nWhat Is the Record Date and Why Is It Important? Plus an Example\n
\nThe record date is the last date on which shareholders are eligible to receive a dividend or distribution. It's established by the company's board.
\nmore\n
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\nDividends: Definition in Stocks and How Payments Work\n
\nA dividend is a distribution of earnings, often quarterly, by a company to its shareholders in the form of cash or stock reinvestment.
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\t\t\n\n\t\t\n", + "page_last_modified": "" + }, + { + "page_name": "How Dividends Affect Stock Prices With Examples", + "page_url": "https://www.investopedia.com/articles/investing/091015/how-dividends-affect-stock-prices.asp", + "page_snippet": "Find out how dividends affect the underlying stock's price, market psychology, and how to predict price changes after dividend declarations.Before a dividend is distributed, the issuing company must first declare the dividend amount and the date when it will be paid. The last date when shares can be purchased to receive the dividend is the day before the ex-dividend date. The ex-dividend date is set based on stock exchange rules and generally falls one business day before the date of record, which is the date when the company reviews the list of shareholders on its books. Companies pay dividends to distribute profits to shareholders, which also signals corporate health and earnings growth to investors. Because share prices represent future cash flows, future dividend streams are incorporated into the share price, and discounted dividend models can help analyze a stock's value. The ex-date, or ex-dividend date, is the date on or after which a security is traded without a previously declared dividend or distribution. more \u00b7 Dividend Growth Rate: Definition, How to Calculate, and Example Dividends can affect the price of their underlying stock in a variety of ways. While the dividend history of a given stock plays a general role in its popularity, the declaration and payment of dividends also have a specific and predictable effect on market prices.", + "page_result": "\n\t\t\t\t\n\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t \n \n \n\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\nHow Dividends Affect Stock Prices With Examples\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\t\t\t\t\t\n\t\t\t\t\t\t\t\n\n\t\t\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n
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\n\nTable of Contents\n
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\n\nTable of Contents\n\n\n\n
\n
    \n
  • \n
    \nHow Dividends Work\n
    \n
    • \n
  • \n
    \nThe Effect of Dividend Psychology\n
    \n
    • \n
  • \n
    \nDividends and Stock Price\n
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    \nStock Dividends\n
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  • \n
    \nDividend Yield/Payout Ratio\n
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  • \n
    \nDividends Per Share\n
    \n
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    \nFAQs\n
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    \nThe Bottom Line\n
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  • \nStocks\n\n\n\n
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  • \nDividend Stocks\n
    • \n
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\nHow Dividends Affect Stock Prices With Examples

\n
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\nBy\n
\nClaire Boyte-White\n
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\nClaire Boyte-White is the lead writer for NapkinFinance.com, co-author of I Am Net Worthy, and an Investopedia contributor. Claire's expertise lies in corporate finance & accounting, mutual funds, retirement planning, and technical analysis.\n
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Updated August 29, 2023
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\n\n\n\nReviewed by\n
Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

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\nDividends can affect the price of their underlying stock in a variety of ways. While the dividend history of a given stock plays a general role in its popularity, the declaration and payment of dividends also have a specific and predictable effect on market prices. After the ex-dividend date, the share price of a stock usually drops by the amount of the dividend.\n

\n
\n
\n
\n

\nKey Takeaways

\n
\n
  • Companies pay dividends to distribute profits to shareholders, which also signals corporate health and earnings growth to investors.
  • Because share prices represent future cash flows, future dividend streams are incorporated into the share price, and discounted dividend models can help analyze a stock's value.
  • After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.
  • Dividends paid out as stock instead of cash can dilute earnings, which can also have a negative impact on share prices in the short term.
\n
\n
\n

How Dividends Work

\n

\nFor investors, dividends serve as a popular source of investment income. For the issuing company, they are a way to redistribute profits to shareholders as a means of thanking them for their support and encouraging additional investment.\n

\n
\n

\nDividends also serve as an announcement of the company's success. Because dividends are issued from a company's retained earnings, only companies that are substantially profitable issue dividends with any consistency.\n

\n
\n

\nDividends are often paid in cash, but they can also be issued in the form of additional shares of stock. In either case, the amount each investor receives is dependent on their current ownership stakes.\n

\n
\n

\nIf a company has one million shares outstanding and declares a 50-cent dividend, then an investor with 100 shares receives $50 and the company pays out a total of $500,000. If it instead issues a 10% stock dividend, the same investor receives 10 additional shares, and the company doles out 100,000 new shares in total.\n

\n
\n

The Effect of Dividend Psychology

\n

\nStocks that pay consistent dividends are popular among investors. Though dividends are not guaranteed on common stock, many companies pride themselves on generously rewarding shareholders with consistent\u2014and sometimes increasing\u2014dividends each year.\n

\n
\n

\nCompanies that do this are perceived as financially stable, and financially stable companies make for good investments, especially among buy-and-hold investors who are most likely to benefit from dividend payments.\n

\n
\n

\nWhen companies display consistent dividend histories, they become more attractive to investors. As more investors buy in to take advantage of this benefit of stock ownership, the stock price naturally increases, thereby reinforcing the belief that the stock is strong. If a company announces a higher-than-normal dividend, public sentiment tends to soar.\n

\n
\n

\nConversely, when a company that traditionally pays dividends issues a lower-than-normal dividend or no dividend at all, it may be interpreted as a sign that the company has fallen on hard times.\n

\n
\n

\nThe truth could be that the company's profits are being used for other purposes\u2014such as funding expansion\u2014but the market's perception of the situation is always more powerful than the truth. Many companies work hard to pay consistent dividends to avoid spooking investors, who may see a skipped dividend as darkly foreboding.\n

\n
\n

The Effect of Dividend Declaration on Stock Price

\n

\nBefore a dividend is distributed, the issuing company must first declare the dividend amount and the date when it will be paid. The last date when shares can be purchased to receive the dividend is the day before the ex-dividend date. The ex-dividend date is set based on stock exchange rules and generally falls one business day before the date of record, which is the date when the company reviews the list of shareholders on its books.\n

\n
\n

\nThe declaration of a dividend naturally encourages investors to purchase stock. Because investors know that they will receive a dividend if they purchase the stock before the ex-dividend date, they are willing to pay a premium.\n

\n
\n

\nThis causes the price of a stock to increase in the days leading up to the ex-dividend date. In general, the increase is about equal to the amount of the dividend, but the actual price change is based on market activity and not determined by any governing entity.\n

\n
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\nOn the ex-date, investors may drive down the stock price by the amount of the dividend to account for the fact that new investors are not eligible to receive dividends and are therefore unwilling to pay a premium.\n

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\nHowever, if the market is particularly optimistic about the stock leading up to the ex-dividend date, the price increase this creates may be larger than the actual dividend amount, resulting in a net increase despite the automatic reduction. If the dividend is small, the reduction may even go unnoticed due to the back and forth of normal trading.\n

\n
\n

\nMany people invest in certain stocks at certain times solely to collect dividend payments. Some investors purchase shares just before the ex-dividend date and then sell them again right after the date of record\u2014a tactic that can result in a tidy profit if it is done correctly.\n

\n
\n

Stock Dividends

\n

\nThough stock dividends do not result in any actual increase in value for investors at the time of issuance, they affect stock prices similar to that of cash dividends. After the declaration of a stock dividend, the stock's price often increases; however, because a stock dividend increases the number of shares outstanding while the value of the company remains stable, it dilutes the book value per common share, and the stock price is reduced accordingly.\n

\n
\n

\nAs with cash dividends, smaller stock dividends can easily go unnoticed. A 2% stock dividend paid on shares trading at $200 only drops the price to $196.10, a reduction that could easily be the result of normal trading. However, a 35% stock dividend drops the price down to $148.15 per share, which is pretty hard to miss.\n

\n
\n

Dividend Yield/Payout Ratio

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\nThe dividend yield and dividend payout ratio (DPR) are two valuation ratios investors and analysts use to evaluate companies as investments for dividend income. The dividend yield shows the annual return per share owned that an investor realizes from cash dividend payments or the dividend investment return per dollar invested. It is expressed as a percentage and calculated as:

\n
\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDividend yield\n\n\n=\n\n\n\nannual dividends per share\n\n\nprice per share\n\n\n\n\n\n\n\n\n\\begin{aligned}&\\text{Dividend yield}=\\frac{\\text{annual dividends per share}}{\\text{price per share}}\\end{aligned}\n\n\n\u200bDividend yield=price per shareannual dividends per share\u200b\u200b\n
\n

The dividend yield provides a good basic measure for an investor to use in comparing the dividend income from his or her current holdings to potential dividend income available through investing in other equities or mutual funds.

\n

Concerning overall investment returns, it is important to note that increases in share price reduce the dividend yield ratio even though the overall investment return from owning the stock may have improved substantially. Conversely, a drop in share price shows a higher dividend yield but may indicate the company is experiencing problems and lead to a lower total investment return.

\n

The dividend payout ratio is considered more useful for evaluating a company's financial condition and the prospects for maintaining or improving its dividend payouts in the future. The dividend payout ratio reveals the percentage of net income a company is paying out in the form of dividends.

\n

It is calculated using the following equation:

\n
\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDPR\n\n\n=\n\n\n\nTotal dividends\n\n\nNet income\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nwhere:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDPR\n\n\n=\n\n\nDividend payout ratio\n\n\n\n\n\n\n\n\\begin{aligned}&\\text{DPR}=\\frac{\\text{Total dividends}}{\\text{Net income}}\\\\&\\textbf{where:}\\\\&\\text{DPR}=\\text{Dividend payout ratio}\\end{aligned}\n\n\n\u200bDPR=Net incomeTotal dividends\u200bwhere:DPR=Dividend payout ratio\u200b\n
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If the dividend payout ratio is excessively high, it may indicate less likelihood a company will be able to sustain such dividend payouts in the future, because the company is using a smaller percentage of earnings to reinvest in company growth.

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Therefore, a stable dividend payout ratio is commonly preferred over an unusually big one. A good way to determine if a company's payout ratio is a reasonable one is to compare the ratio to that of similar companies in the same industry.
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Dividends Per Share

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\nDividends per share (DPS) measures the total amount of profits a company pays out to its shareholders, generally over a year, on a per-share basis. DPS can be calculated by subtracting the special dividends from the sum of all dividends over one year and dividing this figure by the outstanding shares.

\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nDPS\n\n\n=\n\n\n\n\nD\n\n\n\u2212\n\n\nSD\n\n\n\nS\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nwhere:\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nD\n\n\n=\n\n\nsum of dividends over a period (usually\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\na quarter or year)\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nSD\n\n\n=\n\n\nspecial, one-time dividends in the period\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nS\n\n\n=\n\n\nordinary shares outstanding for the period\n\n\n\n\n\n\n\n\\begin{aligned} &\\text{DPS} = \\frac { \\text{D} - \\text{SD} }{ \\text{S} } \\\\ &\\textbf{where:} \\\\ &\\text{D} = \\text{sum of dividends over a period (usually} \\\\ &\\text{a quarter or year)} \\\\ &\\text{SD} = \\text{special, one-time dividends in the period} \\\\ &\\text{S} = \\text{ordinary shares outstanding for the period} \\\\ \\end{aligned}\n\n\n\u200bDPS=SD\u2212SD\u200bwhere:D=sum of dividends over a period (usuallya quarter or year)SD=special, one-time dividends in the periodS=ordinary shares outstanding for the period\u200b

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For example, company HIJ has five million outstanding shares and paid dividends of $2.5 million last year; no special dividends were paid. The DPS for company HIJ is 50 cents ($2,500,000 \u00f7 5,000,000) per share. A company can decrease, increase, or eliminate all dividend payments at any time.

\n

A company may cut or eliminate dividends when the economy is experiencing a downturn. Suppose a dividend-paying company is not earning enough; it may look to decrease or eliminate dividends because of the fall in sales and revenues. For example, if Company HIJ experiences a fall in profits due to a recession the next year, it may look to cut a portion of its dividends to reduce costs.

\n

Another example would be if a company is paying too much in dividends. A company can gauge whether it is paying too much of its earnings to shareholders by using the payout ratio. For example, suppose company HIJ has a DPS of 50 cents per share and its earnings per share (EPS) is 45 cents per share. The payout ratio is 1.11% = (50/45); this figure shows that HIJ is paying out more to its shareholders than the amount it is earning. The company will look to cut or eliminate dividends because it should not be paying out more than it is earning.

\n

The Dividend Discount Model

\n

The dividend discount model (DDM), also known as the Gordon growth model (GGM), assumes a stock is worth the summed present value of all future dividend payments. This is a popular valuation method used by fundamental investors and value investors. In simplified theory, a company invests its assets to derive future returns, reinvests the necessary portion of those future returns to maintain and grow the firm, and transfers the balance of those returns to shareholders in the form of dividends.

\n

According to the DDM, the value of a stock is calculated as a ratio with the next annual dividend in the numerator and the discount rate less the dividend growth rate in the denominator. To use this model, the company must pay a dividend and that dividend must grow at a regular rate over the long term. The discount rate must also be higher than the dividend growth rate for the model to be valid.

The DDM is solely concerned with providing an analysis of the value of a stock based solely on expected future income from dividends. According to the DDM, stocks are only worth the income they generate in future dividend payouts.

\n

One of the most conservative metrics to value stocks, this model represents a financial theory that requires a significant amount of assumptions regarding a company\u2019s dividend payments, patterns of growth, and future interest rates. Advocates believe projected future cash dividends are the only dependable appraisal of a company\u2019s intrinsic value.

\n

The DDM requires three pieces of data for its analysis, including the current or most recent dividend amount paid out by the company; the rate of growth of the dividend payments over the company's dividend history; and the required rate of return the investor wishes to make or considers minimally acceptable.

\n

The current dividend payout can be found among a company's financial statements on the statement of cash flows. The rate of growth of dividend payments requires historical information about the company that can easily be found on any number of stock information websites. The required rate of return is determined by an individual investor or analyst based on a chosen investment strategy.
\n

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\n
\n

While the dividend discount model provides a solid approach for projecting future dividend income, it falls short as an equity valuation tool by failing to include any allowance for capital gains through appreciation in stock price.

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\n\n

What Are the Different Types of Dividends?

\n

The different types of dividends are cash dividends (cash is paid out to the investor on each share), stock dividends (extra shares are provided to the investor), and scrip dividends (when a company has no cash and issues a promissory note to pay shareholders later).

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\n
\n\n

Are Dividends Taxed?

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Yes, dividends are taxed as income. Depending on the type of dividend, they are taxed at either ordinary income tax rates or capital gains tax rates. The latter applies if they are qualified dividends that meet certain requirements.

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\n
\n
\n\n

How Do Dividends Work?

\n

Dividends are a payout to shareholders in the form of either cash or additional shares on every share they hold. A shareholder must have purchased a stock by a certain date to be eligible to receive the next dividend. Dividends are usually paid quarterly to shareholders.

\n
\n
\n

The Bottom Line

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\nDividends can be an attractive feature of a stock for investors, particularly if they are following a dividend investment strategy. Before choosing a stock, determine how the dividend impacts its price and if it falls in line with your investment goals.\n

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\nCorrection\u2014Nov. 30, 2023: This article has been corrected to state the last date when shares can be purchased to receive a dividend.\n

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\nArticle Sources
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\nInvestopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our\neditorial policy.\n
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    \n

  1. Bureau of Economic Analysis. "How Are Dividends Defined in the U.S. National Accounts?"

    2. \n

  2. U.S. Securities & Exchange Commission. "Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends."

    3. \n

  3. NASDAQ. "The Truth About Dividend Payout Ratio."

    4. \n
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\nRelated Terms
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\n
\nDividend Yield: Meaning, Formula, Example, and Pros and Cons\n
\nThe dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
\nmore\n
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\nPayment Date for Dividends: Overview, Key Dates, and Examples\n
\nThe payment date is the date set by a company when it will issue payment on the stock's dividend.
\nmore\n
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\nWhat Does Ex-Dividend Mean, and What Are the Key Dates?\n
\nEx-dividend is a classification in stock trading that indicates when a declared dividend belongs to the seller rather than the buyer.
\nmore\n
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\n
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\nDividend Arbitrage: What It Is, How It Works, and Example\n
\nDividend arbitrage is an options trading strategy that involves purchasing puts and stock before the ex-dividend date and then exercising the put.
\nmore\n
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\nEx-Dividend Date: Definition, Key Dates, and Example\n
\nThe ex-date, or ex-dividend date, is the date on or after which a security is traded without a previously declared dividend or distribution.
\nmore\n
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\nDividend Growth Rate: Definition, How to Calculate, and Example\n
\nThe dividend growth rate is the annualized percentage rate of growth of a particular stock's dividend over time.
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\t\t\n\n\t\t\n", + "page_last_modified": "" + }, + { + "page_name": "Ex-Dividend Date vs. Date of Record: What's the Difference?", + "page_url": "https://www.investopedia.com/articles/02/110802.asp", + "page_snippet": "To get stock dividends, you must buy the stock or already own it at least two days before the date of record or one day before the ex-dividend date. Here's why.Are you mystified by the workings of dividends and dividend distributions? Chances are it's not the concept of dividends that confuses you. The ex-dividend date and date of record are the tricky factors. Briefly, in order to be eligible for payment of stock dividends, you must buy the stock (or already own it) at least two days before the date of record and still own the shares at the close of trading one business day before the ex-date. Another rarer type of dividend is the property dividend, which is a tangible asset distributed to stockholders. For instance, if Cory's Brewing Company wanted to pay out dividends but didn't have enough stock or money to spare, the company could look for something physical to distribute. For instance, if Cory's Brewing Company wanted to pay out dividends but didn't have enough stock or money to spare, the company could look for something physical to distribute. In this case, Cory's might distribute a couple of six-packs of its famous peach beer to all shareholders. There are actually four major dates in the process of a dividend distribution: The declaration date is the day on which the board of directors announces the dividend.", + "page_result": "\n\t\t\t\t\n\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t \n \n \n\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\nComparing Ex-Dividend Date vs. Date of Record\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\t\t\t\t\t\n\t\t\t\t\t\t\t\n\n\t\t\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n
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  • \n
    \nEx-Dividend Date vs. Date of Record\n
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  • \n
    \nWhy Issue a Dividend?\n
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    \nEx-Dividend Date\n
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    \nDate of Record\n
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    \nSpecial Considerations\n
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\nEx-Dividend Date vs. Date of Record: What's the Difference?

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What Is the Difference Between Ex-Dividend Date and Date of Record?

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\nAre you mystified by the workings of dividends and dividend distributions? Chances are it's not the concept of dividends that confuses you. The ex-dividend date and date of record are the tricky factors. Briefly, in order to be eligible for payment of stock dividends, you must buy the stock (or already own it) at least two days before the date of record and still own the shares at the close of trading one business day before the ex-date. That's one day before the ex-dividend date.\n

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\nSome investment terms are tossed around more than a Frisbee on a hot summer day, so first let's fill in some of the basics of stock dividends.\n

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\n
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\nKey Takeaways

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\n
  • The trading date on or after which a new buyer of a stock is not yet owed the dividend is known as the ex-dividend date.
  • The company identifies all shareholders of the company on what is called the date of record.
  • To be eligible for the dividend, you must buy the stock at least two business days before the date of record and own it by the close one business day before the ex-date.
\n
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\nThere are actually four major dates in the process of a dividend distribution:\n

\n
\n
    \n
  • The declaration date is the day on which the board of directors announces the dividend.
    • \n
  • 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.
    • \n
  • The date of record is the day on which the company checks its records to identify shareholders of the company. An investor must be listed on that date to be eligible for a dividend payout.
    • \n
  • The date of payment is the day the company mails out the dividend to all holders of record. This may be a week or more after the date of record.
    • \n
\n
\n

Why Issue a Dividend?

\n

\nThe decision to distribute a dividend is made by a company's board of directors. Essentially, it is a share of the profits that is awarded to the company's shareholders.\n

\n
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\nMany investors view a steady dividend history as an important indicator of a good investment, so companies are reluctant to reduce or stop regular dividend payments.\n

\n
\n

\nDividends can be paid in various ways, but the big two are cash and stock.\n

\n
\n

Example of a Cash Dividend

\n

\nFor example, suppose you own 100 shares of Cory's Brewing Company. Cory has enjoyed record sales this year thanks to the high demand for its unique peach-flavored beer. The company decides to share some of the good fortune with stockholders and declares a dividend of $0.10 per share. You will receive a payment from Cory's Brewing Company of $10.00.\n

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\n

\nIn practice, companies that pay dividends, issue them four times a year. A one-time dividend such as the one in this example is called an extra dividend.\n

\n
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Example of a Stock Dividend

\n

\nThe stock dividend, the second-most common dividend-paying method, pays in shares rather than cash. Cory might issue a dividend of $0.05 new shares for every existing one. You will receive five shares for every 100 shares that you own. If any fractional shares are left over, the dividend is paid as cash because stocks don't trade fractionally.\n

\n
\n

The Rare Property Dividend

\n

\nAnother rarer type of dividend is the property dividend, which is a tangible asset distributed to stockholders. For instance, if Cory's Brewing Company wanted to pay out dividends but didn't have enough stock or money to spare, the company could look for something physical to distribute. In this case, Cory's might distribute a couple of six-packs of its famous peach beer to all shareholders.\n

\n
\n

Ex-Dividend Date

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\nAs noted above, the ex-date or ex-dividend date marks the cutoff point for a pending stock dividend. Some trading platforms, market data, and news services might add an XD modifier to the ticker symbol to show it is trading ex-dividend.\n

\n
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\nIf you buy a stock one day before the ex-dividend, you will get the dividend. If you buy on the ex-dividend date or any day after, you won't get the dividend.\n

\n
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\nConversely, if you want to sell a stock and still get a dividend that has been declared, you need to hang onto it until the ex-dividend day.\n

\n
\n

\nThe ex-date is one business day before the date of record.\n

\n
\n

Date of Record

\n

\nThe date of record is the date in which the company identifies all of its current stockholders, and therefore everyone who is eligible to receive the dividend. If you're not on the list, you don't get the dividend.\n

\n
\n

\nIn today's market, settlement of stocks is a T+2 process, which means that a transaction is entered into the company's record books two business days after the trade.\n

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\nTo ensure that you are in the record books, you need to buy the stock at least two business days before the date of record, or one day before the ex-dividend date.\n

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\nImage by Sabrina Jiang \u00a9 Investopedia\u00a02020\n
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\nAs you can see from the diagram above, if you buy on the ex-dividend date (Tuesday), only one day before the date of record, you will not get the dividend because your name will not appear in the company's record books until Thursday. If you want to buy the stock and receive the dividend, you need to buy it on Monday. When the stock is trading with the dividend, the term cum dividend is used.\n

\n
\n

\nIf you want to sell the stock and still receive the dividend, you need to sell on or after Tuesday the 6th. Different rules apply if the dividend is 25%, or greater, of the value of the security. In this case, the Financial Industry Regulatory Authority (FINRA) indicates that the ex-date is the first business day following the payable date.\n

\n
\n

Special Considerations on Dividends

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\nThe only other date that is worth mentioning is the date of payment. That is the date the company delivers dividends to the shareholders of record. This can be a week or more after the date of record.\n

\n
\n

\nIt may sound like easy money. Just buy a stock two days before the date of record and grab the dividend.\n

\n
\n

\nIt's not that easy. Remember, the declaration date has passed and everybody else knows when the dividend is going to be paid too. On the ex-dividend date, the stock price will drop by roughly the amount of the dividend as traders acknowledge the reduction in the company's cash reserves.\n

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\n
\n
    \n

  1. U.S. Securities and Exchange Commission. "Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends."

    2. \n

  2. PwC. "U.S. Financing Guide: 4.4 Dividends."

    3. \n

  3. Financial Industry Regulatory Authority. "Stocks: Overview."

    4. \n

  4. U.S. Securities and Exchange Commission. "Settling Securities Transactions, T+2."

    5. \n

  5. Financial Industry Regulatory Authority. "11140. Transactions in Securities 'Ex-Dividend,' 'Ex-Rights' or 'Ex-Warrants'."

    6. \n
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\nRelated Terms
\n
\n
\nWhat Is the Record Date and Why Is It Important? Plus an Example\n
\nThe record date is the last date on which shareholders are eligible to receive a dividend or distribution. It's established by the company's board.
\nmore\n
\n
\n
\n
\nPayment Date for Dividends: Overview, Key Dates, and Examples\n
\nThe payment date is the date set by a company when it will issue payment on the stock's dividend.
\nmore\n
\n
\n
\n
\nWhat Does Ex-Dividend Mean, and What Are the Key Dates?\n
\nEx-dividend is a classification in stock trading that indicates when a declared dividend belongs to the seller rather than the buyer.
\nmore\n
\n
\n
\n
\nEx-Dividend Date: Definition, Key Dates, and Example\n
\nThe ex-date, or ex-dividend date, is the date on or after which a security is traded without a previously declared dividend or distribution.
\nmore\n
\n
\n
\n
\nDividend Arbitrage: What It Is, How It Works, and Example\n
\nDividend arbitrage is an options trading strategy that involves purchasing puts and stock before the ex-dividend date and then exercising the put.
\nmore\n
\n
\n
\n
\nCum Dividend: Definition, Meaning, How It Works, and Example\n
\nCum dividend is when a buyer of a security will receive a dividend that a company has declared but has not yet paid.
\nmore\n
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\t\t\n\n\t\t\n", + "page_last_modified": "" + }, + { + "page_name": "Ex-Dividend Date vs. Date of Record: What's the Difference?", + "page_url": "https://www.investopedia.com/articles/02/110802.asp", + "page_snippet": "To get stock dividends, you must buy the stock or already own it at least two days before the date of record or one day before the ex-dividend date. Here's why.Are you mystified by the workings of dividends and dividend distributions? Chances are it's not the concept of dividends that confuses you. The ex-dividend date and date of record are the tricky factors. Briefly, in order to be eligible for payment of stock dividends, you must buy the stock (or already own it) at least two days before the date of record and still own the shares at the close of trading one business day before the ex-date. Another rarer type of dividend is the property dividend, which is a tangible asset distributed to stockholders. For instance, if Cory's Brewing Company wanted to pay out dividends but didn't have enough stock or money to spare, the company could look for something physical to distribute. For instance, if Cory's Brewing Company wanted to pay out dividends but didn't have enough stock or money to spare, the company could look for something physical to distribute. In this case, Cory's might distribute a couple of six-packs of its famous peach beer to all shareholders. There are actually four major dates in the process of a dividend distribution: The declaration date is the day on which the board of directors announces the dividend.", + "page_result": "\n\t\t\t\t\n\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t \n \n \n\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\nComparing Ex-Dividend Date vs. Date of Record\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n\n\t\t\t\t\t\n\t\t\t\t\t\t\t\n\n\t\t\n\n\n\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n\n\n\n\n
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\n\nTable of Contents\n
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\n\nTable of Contents\n\n\n\n
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    \n
  • \n
    \nEx-Dividend Date vs. Date of Record\n
    \n
    • \n
  • \n
    \nWhy Issue a Dividend?\n
    \n
    • \n
  • \n
    \nEx-Dividend Date\n
    \n
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  • \n
    \nDate of Record\n
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    \nSpecial Considerations\n
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  • \nStocks\n\n\n\n
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  • \nDividend Stocks\n
    • \n
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\n

\nEx-Dividend Date vs. Date of Record: What's the Difference?

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What Is the Difference Between Ex-Dividend Date and Date of Record?

\n

\nAre you mystified by the workings of dividends and dividend distributions? Chances are it's not the concept of dividends that confuses you. The ex-dividend date and date of record are the tricky factors. Briefly, in order to be eligible for payment of stock dividends, you must buy the stock (or already own it) at least two days before the date of record and still own the shares at the close of trading one business day before the ex-date. That's one day before the ex-dividend date.\n

\n
\n

\nSome investment terms are tossed around more than a Frisbee on a hot summer day, so first let's fill in some of the basics of stock dividends.\n

\n
\n
\n
\n

\nKey Takeaways

\n
\n
  • The trading date on or after which a new buyer of a stock is not yet owed the dividend is known as the ex-dividend date.
  • The company identifies all shareholders of the company on what is called the date of record.
  • To be eligible for the dividend, you must buy the stock at least two business days before the date of record and own it by the close one business day before the ex-date.
\n
\n
\n

\nThere are actually four major dates in the process of a dividend distribution:\n

\n
\n
    \n
  • The declaration date is the day on which the board of directors announces the dividend.
    • \n
  • 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.
    • \n
  • The date of record is the day on which the company checks its records to identify shareholders of the company. An investor must be listed on that date to be eligible for a dividend payout.
    • \n
  • The date of payment is the day the company mails out the dividend to all holders of record. This may be a week or more after the date of record.
    • \n
\n
\n

Why Issue a Dividend?

\n

\nThe decision to distribute a dividend is made by a company's board of directors. Essentially, it is a share of the profits that is awarded to the company's shareholders.\n

\n
\n

\nMany investors view a steady dividend history as an important indicator of a good investment, so companies are reluctant to reduce or stop regular dividend payments.\n

\n
\n

\nDividends can be paid in various ways, but the big two are cash and stock.\n

\n
\n

Example of a Cash Dividend

\n

\nFor example, suppose you own 100 shares of Cory's Brewing Company. Cory has enjoyed record sales this year thanks to the high demand for its unique peach-flavored beer. The company decides to share some of the good fortune with stockholders and declares a dividend of $0.10 per share. You will receive a payment from Cory's Brewing Company of $10.00.\n

\n
\n

\nIn practice, companies that pay dividends, issue them four times a year. A one-time dividend such as the one in this example is called an extra dividend.\n

\n
\n

Example of a Stock Dividend

\n

\nThe stock dividend, the second-most common dividend-paying method, pays in shares rather than cash. Cory might issue a dividend of $0.05 new shares for every existing one. You will receive five shares for every 100 shares that you own. If any fractional shares are left over, the dividend is paid as cash because stocks don't trade fractionally.\n

\n
\n

The Rare Property Dividend

\n

\nAnother rarer type of dividend is the property dividend, which is a tangible asset distributed to stockholders. For instance, if Cory's Brewing Company wanted to pay out dividends but didn't have enough stock or money to spare, the company could look for something physical to distribute. In this case, Cory's might distribute a couple of six-packs of its famous peach beer to all shareholders.\n

\n
\n

Ex-Dividend Date

\n

\nAs noted above, the ex-date or ex-dividend date marks the cutoff point for a pending stock dividend. Some trading platforms, market data, and news services might add an XD modifier to the ticker symbol to show it is trading ex-dividend.\n

\n
\n

\nIf you buy a stock one day before the ex-dividend, you will get the dividend. If you buy on the ex-dividend date or any day after, you won't get the dividend.\n

\n
\n

\nConversely, if you want to sell a stock and still get a dividend that has been declared, you need to hang onto it until the ex-dividend day.\n

\n
\n

\nThe ex-date is one business day before the date of record.\n

\n
\n

Date of Record

\n

\nThe date of record is the date in which the company identifies all of its current stockholders, and therefore everyone who is eligible to receive the dividend. If you're not on the list, you don't get the dividend.\n

\n
\n

\nIn today's market, settlement of stocks is a T+2 process, which means that a transaction is entered into the company's record books two business days after the trade.\n

\n
\n

\nTo ensure that you are in the record books, you need to buy the stock at least two business days before the date of record, or one day before the ex-dividend date.\n

\n
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\n\n\n
\n
\n
\nImage by Sabrina Jiang \u00a9 Investopedia\u00a02020\n
\n
\n

\nAs you can see from the diagram above, if you buy on the ex-dividend date (Tuesday), only one day before the date of record, you will not get the dividend because your name will not appear in the company's record books until Thursday. If you want to buy the stock and receive the dividend, you need to buy it on Monday. When the stock is trading with the dividend, the term cum dividend is used.\n

\n
\n

\nIf you want to sell the stock and still receive the dividend, you need to sell on or after Tuesday the 6th. Different rules apply if the dividend is 25%, or greater, of the value of the security. In this case, the Financial Industry Regulatory Authority (FINRA) indicates that the ex-date is the first business day following the payable date.\n

\n
\n

Special Considerations on Dividends

\n

\nThe only other date that is worth mentioning is the date of payment. That is the date the company delivers dividends to the shareholders of record. This can be a week or more after the date of record.\n

\n
\n

\nIt may sound like easy money. Just buy a stock two days before the date of record and grab the dividend.\n

\n
\n

\nIt's not that easy. Remember, the declaration date has passed and everybody else knows when the dividend is going to be paid too. On the ex-dividend date, the stock price will drop by roughly the amount of the dividend as traders acknowledge the reduction in the company's cash reserves.\n

\n
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\n
\n
\n
\nArticle Sources
\n
\n
\n
\n
\n
\n
\n
\n
\nInvestopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our\neditorial policy.\n
\n
\n
    \n

  1. U.S. Securities and Exchange Commission. "Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends."

    2. \n

  2. PwC. "U.S. Financing Guide: 4.4 Dividends."

    3. \n

  3. Financial Industry Regulatory Authority. "Stocks: Overview."

    4. \n

  4. U.S. Securities and Exchange Commission. "Settling Securities Transactions, T+2."

    5. \n

  5. Financial Industry Regulatory Authority. "11140. Transactions in Securities 'Ex-Dividend,' 'Ex-Rights' or 'Ex-Warrants'."

    6. \n
\n
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\n
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\nRelated Terms
\n
\n
\nWhat Is the Record Date and Why Is It Important? Plus an Example\n
\nThe record date is the last date on which shareholders are eligible to receive a dividend or distribution. It's established by the company's board.
\nmore\n
\n
\n
\n
\nPayment Date for Dividends: Overview, Key Dates, and Examples\n
\nThe payment date is the date set by a company when it will issue payment on the stock's dividend.
\nmore\n
\n
\n
\n
\nWhat Does Ex-Dividend Mean, and What Are the Key Dates?\n
\nEx-dividend is a classification in stock trading that indicates when a declared dividend belongs to the seller rather than the buyer.
\nmore\n
\n
\n
\n
\nEx-Dividend Date: Definition, Key Dates, and Example\n
\nThe ex-date, or ex-dividend date, is the date on or after which a security is traded without a previously declared dividend or distribution.
\nmore\n
\n
\n
\n
\nDividend Arbitrage: What It Is, How It Works, and Example\n
\nDividend arbitrage is an options trading strategy that involves purchasing puts and stock before the ex-dividend date and then exercising the put.
\nmore\n
\n
\n
\n
\nCum Dividend: Definition, Meaning, How It Works, and Example\n
\nCum dividend is when a buyer of a security will receive a dividend that a company has declared but has not yet paid.
\nmore\n
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\t\t\n\n\t\t\n", + "page_last_modified": "" + } + ] +} \ No newline at end of file