What Is the Declaration Date?

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. The declaration date is also referred to as the "announcement date."

In addition to being the date on which the next dividend payment is announced, the declaration date is also the last day on which the holder of an option must indicate whether they will exercise the option. This is also known as the "expiration date."

Key Takeaways

  • The declaration date is the date on which a company announces its next dividend payment.
  • On this date, it will be announced the dividend size, the ex-dividend date, and the payment date.
  • For options, the declaration date is the last date the holder of an option can indicate whether they will exercise their option.
  • The declaration date is important to investors because it provides the information for them to know whether or not they will be eligible for a dividend payment.

Understanding the Declaration Date

Most investors consider the declaration date to be the least important of all the dividend dates, which include the ex-dividend date, the payment date, and the record date. It is considered the least important because it is only a communication of information rather than a date in which any impact will take place.

For example, the payment date is when the dividend is received, the ex-dividend date is the last date an investor must hold a share to be eligible for a dividend, and the record date is the date by which a shareholder must be registered with the company. Once a dividend is authorized, it becomes a declared dividend. It becomes the company's legal liability to pay it.

In regards to options, 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.

Dividend Dates

Following the declaration date, the company establishes a record date to determine which shareholders are eligible to receive a dividend or distribution depending on their registration status. The ex-dividend date is the date on which the seller is still entitled to the dividend even if they have already sold their shares 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 that financial markets presently use in the United States. 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 maintaining a steady income without much risk and/or an addition to a broader portfolio strategy.

Declaration Dates and Options

Declaration dates are also associated with stock options as it is the last date an option holder may exercise their stock options. A stock option contract between two consenting parties generally consists of 100 shares of an underlying stock. Put and call options are the 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.

Example of a Declaration Date

On March 10, 2020, ABC Company notifies its shareholders that a dividend will be paid on April 12, 2020. ABC further stipulates that all shareholders that are registered on the company's books before March 25, 2020, will be eligible for the dividend payment. In this scenario for ABC Company, the declaration date is March 10, 2020, thy payment date is April 12, 2020, the record date is March 25, 2020, and the ex-dividend date will be March 23, 2020, two days prior to the record date.

If a stockholder sold their stock before March 23, 2020, the ex-dividend date, then they would not be eligible to receive the dividend payment on April 12, 2020. However, if they sold their stock on March 30, for example, they would still be eligible to receive the dividend payment on April 12, 2020.