Using A Dividend Trading Strategy? You Need To Know How Dividends Get Paid
June 16, 2018
Aside from being an incentive for long-term investors, dividends represent a great trading opportunity for those looking to capitalize on quick inefficiencies. But in order to use a dividend capture strategy, you first need to understand the timeline of how dividends get paid to investors.
How Dividend Payments Work
Most dividend payments are quarterly, but some stocks make monthly payments, and some companies make irregular special dividend payments on rare occasions.
First of all, you don’t need to take any action if you already own a stock paying a dividend. The payment will simply show up as a cash payments directly into your account. But if you are actively trading dividend stocks, these are the dates to know.
The Declaration Date
This is the date that a company publicly announces it is paying a dividend to shareholders. They’ll also announce two other dates worth knowing: the record date and payment date. The declaration date sets in motion the dividend payment timeline.
The Ex-Dividend Date
The first day that the stock will trade without (ex) it’s dividend. In other words, the stock will trade at a price that reflects the previous day’s price minus the dividend amount.
On these days, a stock is said to be “going ex-dividend” “trading ex-dividend” or “trading ex”. To be eligible for the next dividend payment, you must own the stock prior to the ex-dividend date.
Record Date (or Holder-of-Record Date)
The record date is two days after the ex-dividend date. This is when the company officially recognizes the full list of shareholders eligible to receive its next dividend.
Payment Date
The date the company actually pays out its dividend, either via mail or electronic transfer.
Putting The Dividend Timeline Together
There’s no standard for the length of the dividend payment process, so it can vary company to company. The key is knowing when each date is happening.
- The company will declare a dividend. Included in that announcement is the amount of the dividend and record and payment dates
- The ex-dividend date will be two days before the record date.
By knowing these dates, you can not only make yourself eligible to receive dividends, but be on the lookout for stocks potentially trading higher or lower on their ex-dividend dates.
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