Stock Dividends Explained | Ex Dates, Payable Dates

Ray Fisher
Ray Fisher

Credentials
Licenses - 7, 66, 6, 24, 4
Firms- E*Trade, JP Morgan, Merrill Lynch, Scottrade

What are stock dividends?

Dividends are cash payments issued by corporations and are paid out to shareholders who own the company’s stock. Stock dividends are typically paid out 4 times a year.

Dividends can be left in cash, or can be automatically invested into buying more shares. This is called dividend reinvestment plan or drip.

For example, an investor owns 500 shares of XYZ. XYZ is paying 30 cents in dividends for the quarter. The investor would get $150, as a dividend payment within the account for that 3 month period.

courtesy of Etrade

Declaration Date

1st is the declaration date. this is when a company announces that they will be paying dividends to shareholders.

Ex-Date

2nd is the ex-dividend date. you have to buy the stock before the ex date in order to receive the dividend.

For example, the ex date for XYZ stock is Tuesday, the record date is Wednesday, you have to be on the record books as of Wednesday in order to be entitled to that dividend.

So, the latest the investor can buy the stock is Monday in order to get paid that dividend since stocks settle T + 2, meaning when if the investor buys the stock on Monday they are not on the books as owner of the stock until Wednesday.

If an investor buys the stock on the ex-date then it is too late, you will not receive the dividend for that quarter.

Note, it is okay to sell the stock on the ex date or anytime thereafter and you will still get the dividend as long as you owned the stock the day before the ex date.

When the stock starts trading on the ex date the stock will open down by the amount of the dividend so if the dividend is 50 cents then the stock will open 50 cents lower in order to account for the dividend that is being paid to the shareholders.

Record Date

3rd is the record date, the record date is typically 1 business day after the ex date. If you own the stock the day before the ex date then you will become owner of record and you will be paid the dividend.

Payable Date

4th is the payable date. this is the date that investors seem to enjoy the most. this is the day the dividend will actually hit your account. the payable date is usually about a month after the record date.

Final Thoughts

We discussed how dividends are cash payments made by corporations to shareholders of their company stock.

We looked at the 4 important dates when it comes to dividend payments.

The 1st date we discussed is the Declaration date, which is the date the company makes a public announcement about the amount of the dividend.

The 2nd date we discussed is the ex date. Investors must buy the stock before the ex date in order to get the dividend.

3rd we discussed the Record date, how stocks settle T + 2, so the latest an investor can wait is the day before the ex date in order to be an owner of record , and thus entitled to the dividend.

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