Do you have important dates listed on your calendar? The birth of a child or grandchild, an anniversary of a first date, an upcoming graduation? Sure you do! But what about dividend stock dates? Dividend stock dates are also important — you may go as far as to put them on your calendar as well!
When you purchase stocks with the intent of earning dividends, it's important to remember these four dates: the declaration date, the ex-dividend date, the record date and the payment date.
In this piece, we'll explore why it's important to know these dividend stock dates, how they're important, and go over the definitions of each. We'll also walk you through the basics of how dividends work. Let's dive in!
What is a Dividend?
A company can share profits with its stockholders through dividends, which are payments that go out to investors on a regular basis. Dividend-paying stocks are one way that investors can earn money. In addition, dividends can:
- Ensure that you get paid during an unbalanced market
- Hedge against inflation over time
- Offer tax advantages
- Be less volatile than non-dividend-paying stocks
- Build wealth through compounding
Investing in dividends requires some research into the underlying fundamentals of each stock and some careful contemplation of your goals. Research goes a long way to understanding how a dividend stock may perform later on.
How Do Dividends Work?
Most companies pay cash payments on a per-share basis. For example, let's say a company pays out dividends of 50 cents per share. In this case, buying 100 shares would net you $50 in cash annually.
Sometimes companies pay out stock dividends instead of cash dividends, or a percentage increase in the number of shares you own. Let's say you have those 100 shares and a company offers a 20% stock dividend, you'd have 120 shares after the company issues the dividend.
Companies may offer several different types of dividends, including cash dividends, stock dividends, property dividends or liquidating dividends:
- Cash dividends: Cash dividends are dividends paid out directly to shareholders in the form of cash through a company's current earnings or accumulated profits
- Stock dividends: Instead of cash payouts, a company may also pay out a stock dividend, or which comes in the form of shares. Some companies opt to pay out shares because they don't deplete the company's cash balance.
- Property dividends: Property dividends distribute property instead of cash or stock dividends.
- Liquidating dividends: Liquidating dividends might occur if a company chooses to sell partial assets (or the whole business).
Learn more: Dividend Stocks for Income: Can You Live Off Dividend Stocks?
Why Should You Know About Dividend Stocks Dates?
Why is it important to understand dividend stocks dates? They are important to understand because they indicate whether you'll receive a dividend payment or not. They are critical in understanding the dividend payout process.
What about buy-and-hold investors? Why should they care about dates if they aren't tied to a dividend payout for living off a regular income stream, especially if you reinvest your dividends? It's a good idea to understand the terms because someday, you may not choose not to reinvest your dividends and may prefer to take them directly.
Dividend Stocks Dates to Know
Let's go over the definition of the four dates: the declaration date, the ex-dividend date, the record date and the payment date.
The declaration date, also called the date of declaration, is the date on which the company's board of directors announces their plan to pay out a dividend. It's important to note that not every company pays a dividend. Some companies (particularly newer companies) don't pay out a dividend because they're working to get capital flowing into the company.
At this same time, the board of directors also announces the date of record and date of payment.
A company that pays out a dividend needs a way to determine which investors can receive a dividend. The board of directors of a company sets the record date, also called the day of record, in order to show the date by which an investor must be on the company's books in order to receive a stock's dividend. The company uses this to come up with a list of shareholders who can receive the dividend.
If you don't have a stock by the ex-dividend date, also called the ex-date, you're on the chopping block for receiving the dividend. You can typically count on the ex-dividend date as set one business day before the record date. However, you're late to the game if you buy on the ex-dividend date or any date after that — you will not receive the next dividend payment.
You have to own a stock prior to the ex-dividend date in order to receive the next dividend payment. In addition, if you happen to sell your shares before the ex-dividend date, you'll also forfeit your dividend payment.
The payment date, also called the date of payment, is exactly what it sounds like — it's payday, and the date that you receive the dividends for the company. How does this work? The company pays your broker and your broker puts the cash dividend directly into your account.
Dividends typically show up in your brokerage account on or within a few days of the date of payment. It might take a few days to move money from your brokerage account and into your bank accounts.
Let's take a look at how these four dates work together in a hypothetical scenario.
June 10, 2022
July 7, 2022
July 8, 2022
August 11, 2022
On June 10, 2022, a company declares a dividend with a payment date of August 11, 2022. Shareholders of record as of July 8, 2022 can get the dividend. The ex-dividend date falls one day before the record date, on July 7, 2022. If you purchase the stock on July 7, you would not receive the dividend. In fact, the dividend would go to the seller that sold you the shares. If you purchased before July 7, you'd receive the dividend.
The record date vs. ex-dividend date might seem confusing. However, it's really important to understand that if you purchase on the record date — July 8, 2022 — you wouldn't receive shares because you cannot achieve a settlement right away, or on the day you buy shares. The ex-dividend date takes the settlement period into account.
How to Find Out About Dividend Stock Dates
How will you know when you're about to earn a dividend? The company you've bought stock from will typically issue a press release and post the announcement on its website. In addition, you may also receive notification by mail when the company will declare a dividend payment. If you're thinking of purchasing a stock, you can locate a "coming soon: ex-dividend dates" list through many different types of financial websites.
Learn more: How to Build a Large Dividend Stock Portfolio
How Often Do Companies Pay Out Dividends?
The vast majority of U.S. companies that pay dividends offer a quarterly payout, including a handful of companies that pay dividends every month. Companies sometimes pay out a special dividend as well. Here's a quick rundown of some of the types of dividends you might receive:
- Monthly dividends: Companies that pay monthly dividends pay out a dividend every month instead of once per year or quarterly. Monthly dividends may work to your advantage if you want to rely on month-to-month income. Monthly reinvestment of dividends will also work in your favor because monthly reinvestment compounds more quickly over time.
- Quarterly dividends: Quarterly dividends are paid four times yearly. Let's say a company pays out a $1 yearly dividend on a quarterly basis. You'd receive $0.25 on a quarterly basis.
- Annual dividends: As you might expect, annual dividends pay dividends once per year.
- Special dividends: A special dividend doesn't happen often. It's a "one-off" dividend which a company offers and is usually tied to a specific event like a sale of an asset or a really great sales period for a particular company you invest in.
Know Dividend Stock Dates Before You Invest
Ready to invest in dividend-paying stocks? Before you fire up your brokerage account and long before you think about transferring money from your bank account to buy shares, it's to your advantage to understand dividend stock dates in-depth, particularly if you plan to earn month-to-month income.
Furthermore, remember that you'll likely have better luck earning from established companies because they are more likely to have a consistent revenue stream in the form of dividend payments. For example, you may want to look into companies that produce oil and natural gas, pharmaceuticals, consumer goods and others, rather than pouring money into a tech startup. If your goal is dividend income, think carefully about the type of company you want to invest in.
If you're not sure which companies and stocks you want to purchase, take a look at 11 Dividend Stocks with High Yields.