The other day some of the dividends of my holdings got deposited into my brokerage accounts, notably Brown-Forman and ExxonMobil. It’s always a rewarding feeling no matter how small the money is because here is money that I’m being paid just for owning a small piece of a business that is out there generating income from sales of oil or gasoline or sour mash whiskey or what have you.
I remember when I first started investing. One of the questions I had was that if shares are constantly being traded, then how do the companies know who to mail the dividends to? What if I buy the stock just a few days before they’re supposed to pay a dividend just so I can get the check?
Well, it turns out that there are rules that govern these scenarios and they are built around four dates that govern the timing, recording and payment of dividends. These dates are dividend declaration, dividend recording, ex-dividend and dividend payment dates.
What are these four dates and how do they work together to ensure that dividend payments are done smoothly and get to the right person?
- Dividend Declaration Date
This is the date that the company announces how much it’s going to pay in dividends for each share held, whether or not it will increase it’s dividend compared to prior years and so on. Usually, at this date, they also announce the dividend recording, ex dividend and sometimes, dividend payment dates so that investors can plan accordingly.
2. Dividend Recording Date
This is the date that the list of the shareholders of the company is frozen so that no changes in ownership is documented for the list of recipients for dividends. That is, whoever is the owner on the dividend recording date is the one the dividends will go to. However, since most share transactions take a few days to settle, it is not possible to get all the list of owners on that day since some of them may have just purchased it and their names or information haven’t fed through the system. To solve this problem, the financial markets came up with a third date.
3. Ex-Dividend Date
This is usually two days before the dividend recording date. This is the last day for any change in ownership to be recorded and fed through the system. All transactions after this date will not be counted towards the dividend list. The day is announced so that investors who want to buy can make their purchases in time to be reflected by the dividend recording date.
4. Dividend Payment Date
The final date is the day that the checks are mailed out or when you finally see the money actually deposited and sitting in your brokerage accounts for you to do whatever with.
For me, since my dividends are still very tiny, I just allow them to accumulate then use them to buy more shares. Or for those companies that have direct reinvestment programs, I just allow them to get reinvested automatically.
One day, the idea is for the dividends to grow large enough that I can actually do something fun with them. It’s going to take a minute, but hey, that’s all part of the fun.
I hope you’ve gotten something out of this. Get those dividends, player.
My company can make you returns of around 40-42% on invested capital in a year, terms and conditions apply. If we can be of help to your investing results, reach out to me on Twitter @eldivyn and we can talk about your needs and our products.