Time and time again, I have heard of people discussing about wanting to buy shares of companies who have just declared dividends to collect the dividends, or to sell their shares worrying that the price of the share will drop after the dividends are distributed.
With as much as four dates tagged to a dividend declaration notice, many of them missed the date or shun away from the stock whenever a dividend is declared.
Above shows the four important dates of the entire dividend paying process.
During the quarterly or annually financial result release, the Board of Directors will decide if the revenue will have enough for future operations and growth. If there are excess cash, they can decide if the company will declare and pay dividends to shareholders.
The declaration date is when the dividend is announced to the public, by the company, on the details of the dividend like the amount, payment date and the date of record.
The date of record is the cut off date where the company will decide which shareholder will receive the dividends.
The ex-dividend date is the first day that the stock trades without the dividend. It is also the most confusing date of the four important dates. Because it takes time, typically two working days, for the share ownership to be actually recorded with the company, the ex-dividend date is usually before the date of record. We will take a look at an example at the later part of this article for better understanding.
The last date, payment date, is the day when you will see the dividend appearing in your account, according to the amount of shares you own and the distributed amount per share.
Using McDonald’s Corporation (NYSE: MCD) recent dividend declaration as an example.
On 28 January 2015, McDonald’s declared a dividend of $0.85 per share to be paid on 16 March 2015. The ex-dividend and record date are on 26 February 2015 and 2 March 2015 respectively.
Andrew saw the dividend declaration by McDonald’s on 28 January and wanting to receive the dividends, he decided to buy the shares. However, due to cash flow problem of Andrew could only have his investment amount ready on 26 February.
If Andrew purchased the shares during trading hours on 26 February (on ex-dividend date), he will be eligible to receive the dividend that will be paid on 2 March.
However, if Andrew had not been able to make the purchase of the shares during trading hours on 26 February, he would not be eligible to receive the dividend payment.
The bottom line
Although it sounds intimidating to have so many dates listed in the dividend declaration notice, understanding the dates is not hard. After understanding the different dates, you will not miss the dividend paying deadlines again.