What Is a Payment Date?
A payment date, also known as the pay date or payable date, is the date on which a declared stock dividend is scheduled to be paid to eligible investors. This date can be up to a month after the ex-dividend date. However, the stock price may fall on the payment date to reflect the dividend payment.
- The payment, or payable date, is the actual day when a company pays its eligible shareholders dividends.
- The payment date will often be a few weeks after the ex-dividend date has occurred.
- Investors and analysts may watch the stock price on the payment date to see if the cash disbursal has a negative impact on the company's perceived financial stability.
Understanding Payment Dates
The payment date for a stock's dividend is the day on which the actual checks go out—or electronic payments are made—to eligible shareholders. Shareholders owning the stock on the record date will receive the dividend on the payment date. The day before the record date is the ex-dividend date or ex-date, meaning it’s the first day the stock is trading ex-dividend.
The payment date for the dividend may be up to one month after the ex-dividend date passes. When the payment date arrives, the company will usually issue the payment to the broker serving the stockholder instead of the shareholder directly. The dividend will then be transferred to the respective shareholder's account or reinvested if designated as such.
There can be changes in a company’s stock price on the payment date for dividends, which investors may look to as an indicator of how the market values the security. Other investors, who did not qualify for the dividend, might buy or sell shares as the payment date approaches. This could lead to the share price remaining elevated despite the issuance of a dividend.
The potential exists for stock prices to decline because the value of a company is decreased based on the full sum of the dividends since the payment is drawn from profits and reserves.
There are some expectations for share prices to decrease in equal amounts to the dividend to show this reduction in value. This may not be the case as other factors can come into play that influences the stock price to a greater extent than a dividend payment. If a company sees its share prices remain the same or increase on or after a payment date, it can indicate that there is a higher market demand for the stock.
Requirements for Payment Dates
Only those shareholders who bought the stock before the ex-dividend date will receive the dividend on the date of payment. The process and cycle of dividend payments typically follow a set pattern. The company’s board of directors will make an announcement declaring the parameters of the next dividend payment to be issued. This is known as the announcement date or declaration date for the dividend.
When the declaration is made, the company will also determine a record date, also known as the date of record, which indicates the deadline for a shareholder to be recorded on the books in order to qualify for the dividend. Usually, this also coincides with who the company also issues such material as financial reports and proxy statements.
This step usually includes the company setting the ex-dividend date, which is determined by the rules of the respective stock exchange it is listed on. New shareholders who first purchase stock on the ex-dividend date or after do not qualify for that next dividend payment to be issued. The ex-dividend date, in many cases, is set one business day prior to the date of record.
To summarize the four major dates in the process of a dividend distribution:
- The declaration date is the day on which the board of directors announces the dividend.
- The ex-date or ex-dividend date is the trading date on (and after) which the dividend is not owed to a new buyer of the stock. The ex-date is one business day before the date of record.
- The date of record is the day on which the company checks its records to identify shareholders of the company. An investor must be listed on that date to be eligible for a dividend payout.
- The date of payment is the day the company mails out the dividend to all holders of record. This may be a week or more after the date of record.