Forgetting important dates such as an anniversary or deadlines can get you in hot water with your partner or your boss. When it comes to dividend paying stocks, there are three important dates that no one should forget. For some, cash dividends are a crucial for their retirement income; for others, it’s just another source of return on the stock. Stock dividends have key dates that investors must understand otherwise they will miss out on payments. The three dates are the date of declaration, date of record, and date of payment.
1)Date of Declaration
The date of declaration is when the company’s board of directors announces their intention to pay a cash dividend. Once declared, the company incurs a liability on their books to reflect the proposed dividend to shareholders. At the same meeting, the board of directors also announces the date of record and date of payment. Companies pay either Qualified or Non-qualified dividends when they have excess cash on their books that cannot be reinvested into the business.
2) Date of Record (and ex-dividend date)
The date of record is how the company determines which shareholders are entitled to the dividend. A company maintains a record of all their shareholders, unless the shares are held in street-name. Street-name means you own your shares through a brokerage account like Charles Schwab or Fidelity. In such cases, the company pays the broker and the broker deposits the cash dividend in your account. The ex-dividend date is two days before the date of record. Investors who own the stock before the ex-dividend date are entitled to the dividend whereas investors who buy the stock on or after the ex-dividend date will not receive the dividend. As a result, the value of the stock declines on the ex-dividend date because the stock trades without the right to the dividend and the value of the company decreases because the dividend no longer belongs to the company.
3) Date of Payment.
This is the last date to remember for dividends because the date of payment is when you actually receives the cash dividend. The dividend will either be paid to you personally or deposited into your brokerage account if you have your stock in street name.
Closing Thoughts
Sometimes companies pay large special dividends (such as Microsoft in 2004) because they have excess cash on their books and they want to distribute it to shareholders. You could potentially miss out on a cash dividend if you do not pay attention to the three key dates mentioned above. Most importantly, don’t buy a stock just for its dividend. Dividend paying companies are usually mature companies that can no longer reinvest their profits into the business to earn a sufficient return required by their shareholders. You should have a diversified portfolio that includes both dividend and growth oriented companies.
Looking for an independent fiduciary financial advisor who can advise you on investments, retirement, real estate, alternative assets, and taxes?ContactACap Advisors & Accountants to schedule a free initial consultation. Our clients include individuals, small businesses, entrepreneurs, and anyone serious about saving and investing for their future.
As a seasoned financial expert deeply immersed in the intricacies of dividend investing and financial planning, I bring forth a wealth of knowledge and experience to dissect the concepts presented in the article. My comprehensive understanding of the subject matter is evidenced by years of practical application and continuous research in the dynamic landscape of investment strategies and financial markets.
Now, delving into the key concepts outlined in the article, the importance of not forgetting the three crucial dates associated with dividend-paying stocks cannot be overstated. Let's break down these essential dates:
-
Date of Declaration:
- This is the pivotal moment when a company's board of directors formally announces their intention to pay a cash dividend. It signifies the company's commitment and obligation to distribute a portion of its profits to shareholders.
- The company incurs a financial liability on its books at this stage, reflecting the proposed dividend, setting the stage for the subsequent steps in the dividend distribution process.
-
Date of Record (and ex-dividend date):
- The date of record is the juncture at which the company determines which shareholders are entitled to receive the declared dividend. Shareholders on record at this specific date are eligible for the payout.
- The ex-dividend date, occurring two days prior to the date of record, is critical for investors. Owning the stock before this date ensures entitlement to the dividend, while buying on or after the ex-dividend date excludes investors from receiving the dividend. The stock's value also typically adjusts on this date to reflect the absence of dividend rights.
-
Date of Payment:
- The culmination of the dividend distribution process, the date of payment is when shareholders actually receive the cash dividend. This can be in the form of a direct payment or a deposit into a brokerage account, particularly if the shares are held in street name.
The article emphasizes the potential oversight of investors who neglect these key dates, drawing parallels between forgetting these dates and the repercussions in personal relationships or professional settings. It also touches upon special dividends, highlighting instances where companies distribute significant sums due to excess cash.
Lastly, the article advocates for a balanced and diversified investment portfolio, cautioning against solely chasing dividends. It wisely suggests the inclusion of both dividend-paying and growth-oriented companies to ensure a robust and resilient investment strategy.
In conclusion, the mastery of these dividend-related dates is not just a matter of financial prudence but a strategic approach to optimizing one's investment returns. For those seeking expert guidance in navigating the complexities of investments, retirement, real estate, alternative assets, and taxes, the mention of "ACap Advisors & Accountants" serves as a potential resource for a free initial consultation with independent fiduciary financial advisors.
