A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.

Dividends can be paid in various different forms, but there are two major categories: cash and stock. The most popular are cash dividends. This is money paid to stockholders, normally out of the corporation’s current earnings or accumulated profits.

The Important Dates of a Dividend
There are four major dates in the process of a company paying dividends:

    * Declaration date– This is the date on which the board of directors announces to shareholders and the market as a whole that the company will pay a dividend.
    * Ex-date or Ex-dividend date– On (or after) this date the security trades without its dividend. If you buy a dividend paying stock one day before the ex-dividend you will still get the dividend, but if you buy on the ex-dividend date, you won’t get the dividend. Conversely, if you want to sell a stock and still receive a dividend that has been declared you need to sell on (or after) the ex-dividend day. The ex-date is the second business day before the date of record.
    * Date of record– This is the date on which the company looks at its records to see who the shareholders of the company are. An investor must be listed as a holder of record to ensure the right of a dividend payout.
    * Date of payment (payable date) – This is the date the company mails out the dividend to the holder of record. This date is generally a week or more after the date of record so that the company has sufficient time to ensure that it accurately pays all those who are entitled.

Why All These Dates?
Ex-dividend dates are used to make sure dividend checks go to the right people. In today’s market, settlement of stocks is a T+3 process, which means that when you buy a stock, it takes three days from the transaction date (T) for the change to be entered into the company’s record books.

All About Dividend Investing (All about) by Don Schreiber, Gary E. Stroik Read more about this book…

The Ultimate Dividend Playbook: Income, Insight and Independence for Today’s Investor by Morningstar Inc., Josh Peters Read more about this book…