Corporate Finance - Dividend Payment Procedures

Dividend payouts follow a set procedure as follows:

Declaration date
Ex-dividend date
Holder-of-record date
Payment date

1. Declaration Date

Declaration date is the announcement that the company's board of directors approved the payment of the dividend.

2. Ex-Dividend Date
The ex-dividend date is the date on which investors are cut off from receiving a dividend. If for example, an investor purchases a stock on the ex-dividend date, that investor will not receive the dividend. This date is two business days before the holder-of-record date.

The ex-dividend date is important as, from this date and forward, new stockholders will not receive the dividend. As a result, the stock price of the company will be reflective of this. For example, on and after the ex-dividend date, a stock most likely trades at lower price, as the stock price is adjusted for the dividend that the new holder will not receive.

3. Holder-of-Record Date
The holder-of-record (owner-of-record) date is the date on which the stockholders who are to receive the dividend are recognized.

Look Out!
Remember that stock transactions typically settle in three business days.

Understanding the dates of the dividend payout process can be tricky. We clear up the confusion in the following article:

4. Payment Date
Last is the payment date, the date on which the actual dividend is paid out to the stockholders of record.

Example of the process of dividend payment
Suppose Newco would like to pay a dividend to its shareholders. The company would proceed as follows:

1.On Jan 28, the company declares it will pay its regular dividend of $0.30 per share to holders of record on Feb 27, with payment on Mar 17.
2.The ex-dividend date for the dividend is Feb 23 (usually four days before of the holder-of-record date). On Feb 23 new buyers do not have a right to the dividend.
3.At the close of business on Feb 27, all holders of Newco's stock are recorded, and those holders will receive the dividend.
4.On Mar 17, the payment date, Newco mails the dividend checks to the holders of record.

Stock Dividends and Repurchases


Related Articles
  1. Investing Basics

    What is a Record Date?

    The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.
  2. Investing

    Ex-Dividend Date

    Not too sure what an ex-dividend date is? Find out here and learn how and when you can take advantage of a stock's dividend.
  3. Investing Basics

    How Dividends Affect Stock Prices

    Find out how dividends affect the price of the underlying stock, the role of market psychology and how to predict price changes after dividend declaration.
  4. Options & Futures

    Understanding How Dividends Affect Option Prices

    Learn how the distribution of dividends on stocks impacts the price of call and put options, and understand how the ex-dividend date affects options.
  5. Mutual Funds & ETFs

    Understanding Taxes on Mutual Funds Dividends

    Learn about the basics of mutual fund dividend taxation, including how and why mutual funds pay dividends and when different tax rates apply to dividend income.
  6. Markets

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  7. Mutual Funds & ETFs

    How Dividend-Paying ETFs Work

    Understand how ETFs that hold dividend-paying securities collect and pass along those dividends proportionally to the shareholders of the ETF.
  8. Stock Analysis

    A Common Income Strategy That Might Hurt Your Portfolio

    Earlier this month, I shared a question we recently received from a long-time subscriber to The Daily Paycheck -- our premium newsletter dedicated to picking the best high-yield opportunities ...
  9. Term

    The Truth About Dividends

    Dividends may seem like money for nothing, but they have several implications.
  10. Investing

    3 Dividend Trends in the S&P 500 Index (TSN, LUV)

    Analyzing recent financial performance of companies demonstrating an inclination to issue consistent dividends to shareholders on a quarterly basis.
RELATED TERMS
  1. Payment Date

    The date on which a declared stock dividend is scheduled to be ...
  2. Ex-Dividend

    A classification of trading shares when a declared dividend belongs ...
  3. Unpaid Dividend

    A dividend that is owed to stockholders of record but has yet ...
  4. Declaration Date

    1. The date on which the next dividend payment is announced by ...
  5. Record Date

    The cut-off date established by a company in order to determine ...
  6. Dividend Rollover Plan

    An investment strategy in which a dividend-paying stock is purchased ...
RELATED FAQS
  1. Why should I pay attention to a dividend's ex-dividend date?

    Understand the importance of the ex-dividend date as the critical date for determining which stockholders qualify to receive ... Read Answer >>
  2. How can I find out the ex-dividend date for a stock's dividend?

    Learn about the various information sources from which investors can obtain information about upcoming ex-dividend dates ... Read Answer >>
  3. How can I find out what date(s) I am supposed to be entitled to ex-dividends?

    Understand the various dates associated with payment of stock dividends and specifically how the determining ex-dividend ... Read Answer >>
  4. If a company moves its dividend record date forward, does the ex-dividend date change ...

    When a dividend is declared, there are three important dates for investors: the dividend payable date, the dividend date ... Read Answer >>
  5. What is the difference between record date and ex-dividend date?

    Understand the difference between important stock purchase and reporting dates to ensure correct receipt of investment dividend ... Read Answer >>
  6. Who actually declares a dividend?

    Understand who actually declares a dividend when a company makes a dividend payment and how the payments of dividends appear ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center