There are four important dates that a passive income investor has to be familiar with in regards to their dividend portfolio. Today’s post will highlight and explain all four dates that one will encounter and try to answer all questions relating to the confusion behind Ex-Dividend dates and when you have to actually buy a stock in order to qualify for its dividends.
You’ll notice these dates be thrown around while you’re cruising the web looking for various information on potential dividend stocks, so go ahead and learn them!
The Declaration Date is the date in which a company publically announces their dividend. The declaration is important because it will tell you how much the dividend will be, as well as the dates for the Ex-Dividend date, the Record date and finally the Payment date.
Outside of the dates, it’s important to know how much the dividend will be and whether or not it’s been increased. For instance, in the example image on this page for Coca Cola (KO), they announced their new dividend on 2/16/17. In the Cash Amount column, we noticed that they will be paying 0.37 per share. This is higher than the previous month’s share by 2 cents, which means a 5.7% increase. (Want to know more about increase calculations? Check out this post.)
The Ex-Dividend date is the date that qualifies any shareholder the right to receive dividends. In order to qualify for the dividend, you must purchase shares of the stock BEFORE the Ex-Dividend date. You will NOT qualify for the dividend if you purchase shares ON the Ex-Dividend date or after it.
The Ex-Dividend date confuses a lot of new investors because they view it as the final day that you can purchase a stock, when in fact, you have to purchase it a day before in order to qualify.
Here’s an example: Based on the KO image above, we see that the Ex-Dividend date is 3/13/17. In order to receive dividends for that quarter, we need to purchase shares before market close on 3/10/17 (due to the weekend).
You may be asking yourself why it works this way. Well it has something to do with the rules of stock settlement called “trade date plus 2 days” or as most people call it, the T-2 rule. Think of it in the same way you would your checking account. When you deposit money, either electronically or by check, the bank takes a few days for the money to “clear”. (It used to be T-3 but has changed to 2 days since Aug 2017)
If you want to know more information about the T-2 rule, check out this Wikipedia Article.
The Record Date is the final cut-off date that the company uses to know which shareholders will be able to receive dividend payments. As an investor, you don’t have to worry too much about Record date as long as you purchase the stock before its Ex-Dividend Date.
If you’re interested in more detail, the Record Date is always 2 days after the Ex-Dividend Date. This ties into the T-2 rule and is the reason why you have to purchase the stock a day before its Ex-Dividend date.
This is the date that every dividend investor loves to see. After all those painstakingly long days/weeks/months/years of holding on to the stock (sarcasm), you finally get rewarded with the cash payment. Dividends are typically credited to the brokerage account nowadays even though some old-schoolers will get checks mailed to them.
Hopefully that clears up some information about all four dates. If you really just want a TL;DR : Buy a stock at least a day before its Ex-dividend in order to qualify for its dividend.
You can check out my personal portfolio if you want.
How To Calculate Dividend Increase Percentages