The declaration date is the date on which the board of directors of a company announces the next dividend payment. This statement includes the dividend's size, ex-dividend date, and payment date. Declaration date is also referred to as the "announcement date."
The declaration date is also the last day on which the holder of an option must indicate whether he or she will exercise the option. This is also known as the "expiration date."
Breaking Down Declaration Date
In the first definition, once a dividend is authorized, it becomes a declared dividend. It becomes the company's legal liability to pay it.
In the second case, the declaration date of all listed stock options in the U.S. is on the third Friday of the listed month. If a holiday falls on a Friday, the declaration date falls on the third Thursday.
Declaration Date and Record Date
Following the declaration date, the company establishes a record date to determine which shareholders are eligible to receive a dividend or distribution. The ex-dividend date is the date on which the seller is still entitled to the dividend even if she/he has already to sold it to a buyer. A person who owns the security on the ex-dividend date will receive payment, regardless of who currently holds the stock.
The ex-dividend date is typically set for two business days prior to the record date, due to the T+3 system of settlement financial markets presently use in North America. Finally, the payment date occurs when the company mails dividend checks or credits them to investor accounts.
Investors pay close attention to records of dividend payments; receiving dividends is an important component of many income-focused investment strategies. These can be standalone approaches to maintain a steady income without much risk and/or an addition to a broader portfolio strategy.
Declaration Date and Options
Declaration dates are also associated with stock options (as noted above the declaration date is the last date an option holder may exercise it). A stock option contract between two consenting parties. Options generally consist of 100 shares of an underlying stock. Put and call options are two major types of options. In a call, a buyer enters into a contract to purchase a stock at a specific price by a specific date. In a put, the option buyer takes out a contract to sell a stock at an agreed-on price on or before a specific date.