Due to the instability in the economy and volatile stock market fluctuations, some investors are turning their attention to companies that pay dividends. These payments provide investors with income flows even when the company itself is not in a growth phase. They also help to mitigate some of the negative effects of poorly performing stocks that do not pay dividends.
The concept of dividend payments is rather simple, it is all the different dates that tend to confuse beginning investors. A dividend is a portion of the company’s earnings that the company board of directors allocates to investors. Investors usually receive dividend payments on a quarterly basis but some companies elect to make these payments on a biannual or annual basis.
Cash is the most popular method of dividend payment but the transaction may also come in the form of additional shares of company stock. The declaration date is the day the company board of directors makes the announcement that a dividend payment will occur. The ex dividend date is the date that the shares begin trading without the dividend. An investor must purchase shares before the ex dividend date in order to receive the upcoming dividend payment.
Two business days later, the dividend record date occurs, one of the most important dates in the process. This is when the company identifies the registered shareholders. These are the individuals who will receive the upcoming dividend payment. Those who are not listed as a holder of record on this date will not receive the dividend payment.
To ensure that they are listed as registered shareholders on the dividend record date, investors should purchase shares prior to the ex dividend date. If they want to receive the upcoming dividend payment, sellers should wait until on or after the ex dividend date to make the sale. When it comes to dividends, it is all about the timing of the transaction.
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