10 Sep 2013
Once dividends are declared/approved by a company’s Board of Directors, there are four important dates to remember regarding dividends:
Declaration date – is the day the Board of Directors announces its intention to pay a dividend. On this day, a liability is created and the company records that liability on its books; it now owes the money to the stockholders. On the declaration date, the Board will also announce a date of record and a payment date.
Ex-dividend date – is the day after which all shares bought and sold no longer come attached with the right to be paid the most recently declared dividend. Prior to this date, the stock is said to be cum dividend (with dividend): existing holders of the stock and anyone who buys it will receive the dividend, whereas any holders selling the stock lose their right to the dividend. On and after this date, the stock becomes ex-dividend: existing holders of the stock will receive the dividend even if they now sell the stock, whereas anyone who now buys the stock will not receive the dividend. It is expected that a stock’s price will fall on the ex-dividend date by an amount approximately equal to the dividend paid. This reflects the decrease in the company’s assets resulting from the declaration of the dividend. The company does not take any explicit action to adjust its stock price; in an efficient market, this will automatically occur.
Record date – shareholders who have registered their ownership on or before the date of record will receive the dividend. Registration in most countries is essentially automatic for shares purchased before the ex-dividend date.