Investing in dividend paying securities is an investment strategy for investors who have a need or preference for regular cash payments. They receive a regular cash dividend but also benefit from the potential change in the share price over a period of time. In other words, their total return will be a combination of the dividends received and the share price appreciation.
A dividend is a cash portion of a company’s profits that is distributed to shareholders. Generally, a dividend paying stock will be a mature company with regular and reliable earnings from which it can pay a portion as a dividend while using the rest for other purposes (debt payment, share repurchases, reinvestment into the company, etc.).
Many investors liken these regular dividend payments as a form of rent while they wait for the share price to increase or in the opposite case a form of compensation while waiting for the share price to recover.
Regardless of the reason, as an investor, there are several important dates to be aware of when purchasing a dividend paying security. Here is a list and a brief explanation.
The declaration date is the first date from which all other dates flow from but also the one that provides all the relevant information the investor needs. On this date the company, specifically its board of directors, will announce the dividend amount per share as well as the ex-dividend date and record date and the payment date. For many companies the declaration date will coincide with their earnings release date.
The ex-dividend date is the date from which a security trades without the declared dividend. This means that to be eligible for the dividend payment, an investor must acquire the security before the ex-dividend date.
The record date is set by the company and is the date that will determine who the stockholders of record are. This is important because the record date is basically the cut-off date used to determine which stockholders will receive the upcoming dividend payment.
The record date is the next business day after the Ex-Dividend date, an investor who wants to receive the dividend would need to buy the stock at least two business days before the record date.
As indicated in the previous section, an investor who wants to receive the dividend must own the stock on the record date which means that the latest purchase date would need to be two business days before. Many investors will use the ex-dividend date as their reference point and make their purchase one business day before in order for the trade to settle on the record date and receive the dividend payment.
This is the actual day when a company will payout the dividend to the eligible shareholders that were determined on the record date. The payment date can be a few weeks after the ex-dividend, and the investor will receive the payment even if they no longer own the shares (they sold them in the meantime).
1. An investor can instruct their direct brokerage firm to set up a dividend
reinvestment plan (DRIP), which allows them to have their
dividends purchase additional shares of the security at no cost while
2. An investor can accumulate their dividend payments from several stocks. Once the cash balance is sufficient, they can make a purchase. With zero commissions on stocks & ETFs with NBDB this has become a viable option even for the purchase of one share. Investors can decide when to dollar cost average on a security!
Investors can easily find that information and much more while consulting our quote section. The Ex-dividend and Pay date are provided and the amount per share of the upcoming dividend as well as the frequency. Further down the page in the events section the declaration and record date are also provided.
As an investor, you are now ready to search for dividend paying securities to hold in your portfolio and by understanding these important dates never miss out on receiving a dividend again.
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