The board of directors of a company determines what portion of company profits to pay to shareholders. It is paid as dividends that take the form of either cash or shares of company stock. Cash dividends may either be taken or reinvested into the company through the purchase of additional shares of stock. A dividend payment date is just one of the terms that an investor should understand regarding this process.
The day the board of directors announces that it will pay a dividend is called the declaration date. An ex-dividend date is the date the shares are no longer traded with dividend rights. Many existing shareholders wait until on or after this date to sell their shares so they can still receive the dividend payment. As of the ex-dividend date, shares of stock bought and sold will no longer have the right of dividend payment attached to them. The share price usually decreases by an amount approximately equal to the amount of dividend that will be paid.
Ex-dividend dates are usually three business days before the date of record. The date of record is the day that the company finalizes the list of registered shareholders who will receive the dividend payment. Any shareholders who are not registered as of the date of record will not receive the upcoming dividend.
Dividend checks are mailed to shareholders or credited to their brokerage accounts on the dividend payment date. Dividend payment dates are usually announced by the company or its board of directors so that shareholders are aware that payment is forthcoming. Preferred stock dividend payment dates are usually fixed because dividend payments are guaranteed by a written contract. Common stock dividend payment dates may change at the discretion of the company.
Knowing the dividend payment date allows the investor to begin planning what to do with the dividend payment. If the payment takes the form of cash, it can be spent, reinvested in the company by purchasing additional shares, or invested elsewhere. Dividend payments in the form of stock will increase the amount of shares of company stock held by the investor.
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