A corporation's Board of Directors must declare all dividends. Four dividend-related dates are important to this process:

Declaration Date
The declaration date is the date that the dividend is announced by the Board of Directors. The declaration statement includes the size of the dividend, the date of record and the payment date (see below). Once the dividend has been declared, the company has a legal responsibility to pay it.

Date of Record (or Record Date)
Once a company announces a dividend, it sets a date of record on or before which you must be on the company's books in order to receive the declared dividend. On the date of record, the company will determine its shareholders, or "holders of record," and the company will use this date to establish to whom it will send financial reports, proxy statements and other information.

Ex-Dividend Date (or Ex-Date)
After the company sets the date of record, the ex-dividend date is set by either the stock exchange or the National Association of Securities Dealers. If an investor purchases a stock on or after its ex-dividend date, he or she will not receive the declared cash dividend; instead, the seller of the stock will be entitled to that dividend. Investors who purchase the stock before the ex-dividend date will receive the dividend.

For example, stock ABC recently announced a cash dividend with an ex-dividend date of December 7. If you purchase 100 shares of ABC stock on December 7 (on or after the ex-dividend date) you will not receive the dividend; the person from whom you bought the shares will receive the dividend. If, however, you purchase the shares on December 5 (before the ex-dividend date) you will be entitled to receive the next dividend. The ex-dividend date for stocks is typically set two business days before the date of record. A stock's price may increase by the dollar amount of the dividend as the ex-date approaches. On the ex-dividend date, the exchange may reduce the price per share by the dollar amount of the dividend.

Note: Procedures for non-cash dividends are a bit different. For example, if a company pays a stock dividend, the ex-dividend date is set the first business day after the stock dividend is paid.

Payment Date (Payable Date)
The payment date is the scheduled date on which a declared dividend will be paid. Only shareholders who owned the stock before the ex-dividend date are entitled to the dividend.

The following table illustrates an example of the relationship between these important dividend-related dates:

Type Declaration Date
Ex-Dividend Date
Record Date
Payment Date
Date Oct. 15, 2012
Dec. 5, 2012
Dec. 7, 2012
Dec. 11, 2012
Notes The date the dividend is announced.
The date before which you must own the stock to be entitled to the dividend.
The date by which you must be on the company\'s books as a shareholder to receive the dividend.
The date the dividend is paid to shareholders.



Next: Introduction To Dividends: Investing In Dividend Stocks »

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