If you’re in the process of learning how to invest in dividend stocks, to make the most of their passive income potential, it’s crucial that you become familiar with the five key dividend dates associated with stocks that pay dividends.
Ultimately, it’s these dates that determine which shareholders will, and will not, be eligible to receive a declared dividend.
1. Dividend Date: Declaration Date
The Declaration Date is the date on which a dividend-paying company announces the next dividend to be paid out to shareholders.
Typically, this legally binding declaration describes the amount of the dividend, the date on which it’s to be paid (the Payment Date), and the dividend’s Date of Record (see description below), which lets investors know the deadline for buying or selling shares in order to be eligible to receive the dividend payment.
2. Dividend Date: Settlement Date
The Settlement Date for a stock trade is also called its closing date, and it’s the date on which the sale or purchase of a security is finalized.
A typical trade takes 2-3 business days to complete, and once the transaction has been finalized, it means the buyer becomes the new official owner of record for that security, and the seller gets paid.
In terms of dividend-paying stocks, the Settlement Date becomes important when trades are conducted just prior to a stock’s Date of Record, since it’s only the owner of record who will be entitled to receive the most recent dividend declared for that stock.
3. Dividend Date: Date of Record
The Date of Record is the cut-off date on which you must officially own a particular stock in order to receive its most recently declared dividend.
This means you can either buy and settle, or simply hold onto, eligible shares of a dividend stock by the Record Date, and you will be entitled to receive its declared dividend.
Similarly, if you sell shares of an eligible stock before the Record Date, you will remain the official owner of those shares, and will still receive the relevant dividend, as long as the sale of those shares does not settle before the Date of Record.
4. Dividend Date: Ex-Dividend Date
The Ex-Dividend Date is the most important of all the dividend stock dates.
Ex-dividend means “without dividend”, and the Ex-Dividend Date is effectively the deadline for buying shares with the attached entitlement of receiving the most recently declared dividend.
A stock’s Ex-Dividend Date is generally set 2-3 days prior to its Record Date, in order to allow time for any associated trades to settle.
This means that as long as you buy your shares before the Ex-Dividend Date, your trade will settle by the Record Date, and you will receive any attached dividend; if you buy them on or after the Ex-Dividend Date however, you will not qualify, and their seller will receive the dividend.
Conversely, if you sell your eligible stock either on or after the Ex-Dividend Date, you will remain entitled to receive its current dividend. But if you sell your shares before this date, that entitlement is sold along with them, and the buyer will receive the dividend.
5. Dividend Date: Payment Date
The Payment Date for a given stock dividend is also known as its distribution date, and is simply the date on which all dividend payouts are transferred to those investors who were on record with the company as official shareholders on the Date of Record.
Most companies pay out dividends on a quarterly basis.
The Bottom Line
Shares of dividend stocks change ownership frequently, as they are bought and sold throughout the trading day, so it’s important that companies set up official dates and deadlines to determine who is legally eligible to receive their associated dividend payments.
You should become thoroughly familiar with the significance of the various dividend dates, in order to maximize your investment returns.
In order to be eligible for receiving dividend payout, just make sure that you make an investment before the ex-dividend date.