Before you start investing, one of the things you should keep in mind is the company’s dividend dates. These dates will tell you when you are going to get a portion of the company’s earnings in proportion to your holding.
Dividend dates are also important for various other reasons. For instance, if you invest on the ex-dividend date, then you will be losing the dividends announced by the company. If you are already holding stocks and sold it before the ex-dividend date, then you will lose the dividend announced by the company because as on record date your name will not be in the company’s shareholders list. Therefore it’s very important to know the dividend schedule of the company before or while investing.
The main objective behind dividend payment is to reward shareholders who have invested their hard earned money in the company’s business.
We have following four important dates associated with dividend payment of the company;
- Declaration or Announce date
- Ex-dividend date
- Record rate
- Payment date
We have explained these dates related to dividend payment below in this article. It will answer following questions;
- Who is entitled to the upcoming dividend declared by the company?
- Will you be getting a dividend if shares are owned by you on the payment date?
- Will you be entitled to dividend if shares are owned by you on the declaration date?
Declaration or Announce date
Declaration date is the day when the board of directors of the company has announced that they are going to pay a dividend to the shareholders. Without shareholders’ approval, the board of directors can not pay dividends. After getting approval, they are liable to distribute it to eligible shareholders.
Record date, ex-dividend date and payment date are established at the time of announcement of dividend. On the declaration date, the board of directors also decides the size of the dividend.
Record date
Record date is the day on which the company will freeze the shareholder’s list for payment of dividend. Which means, on this day those who are holding shares of the company as per the list will get dividend. If you are not holding shares on the record date, then you are not eligible.
Ex-dividend date
Buying and selling shares are routed through various brokers and stock exchanges. Therefore, it takes time to update the shareholders list. Due to this reason, a third day has been developed known as ex-dividend date.
The duration taken for this update is known as the settlement period and it varies among stock exchanges in the country.
For instance in India, ex-dividend dates are one business day prior to the record date. Which means, it takes two business day to update the shareholders list as on the record date. Therefore the ex-dividend date is the actual date you must look at in order to get a dividend of a company.
If you are not holding shares one day before the ex-dividend date, then you will not be recorded as an owner on the record date, due to which you will not receive the dividend on the payment date.
Payment date
Payment date is the day on which you get the dividend credited to your bank account or it has been paid by the company to shareholders. Remember, it does not matter whether you are holding shares of the company on the payment date to get dividend of the company.
Ownership to get a dividend is determined based on the shareholders’ list that the company has on the record date. This list will have your name in it if you are the owner of the shares before the ex-dividend date. If you have sold it on or after the ex-dividend date, then still you will get dividend on the payment date.
Example
Suppose a company has announced to pay 5 rupees per share as dividend to shareholders on 09-4-2020. On this day, they have also announced the record date as 23/04/2020 and payment date as 15/05/2020. In this case the ex-dividend will be announced as 22/04/2020, which is one day before the record date considering two business days as settlement period.
If you want to get a dividend from the company, then you need to buy shares before 22/04/2020. If you buy the stock on or after 22/04/2020, then you will not be getting dividend as your ownership will not get updated in the shareholder’s record of the company as on 23/04/2020.
You will also receive the dividend if you sold the stock on or after 22/04/2020 as your name will be showing in the shareholder’s list of the company as on 23/04/2020.
Remember, in case the record date is monday, then you have to take friday as the ex-dividend date as the difference between these two days is a business day. Same principle is applicable to public holidays. For instance, if the record date is 2nd march 2020 (Monday), then the ex-dividend date would be 28th February 2020 (Friday).
Moneycontrol.com maintains a list of companies declared dividends in India. You can refer to that list (link) to know the latest record and ex-dividend date. You can also refer to the BSE site (link) to know the ex-date and record date of a company.
Summary
- If you buy stock before the ex-dividend date and hold it, then you are entitled to receive the dividend announced by the company.
- If you buy stock on or after the ex-dividend date, then you will not be getting the declared dividend from the company. In this case, the person who sold the stock to you will be entitled to receive dividend because he will be the owner on the record date.
- Declaration date will tell you the size of the dividend, record date, ex-dividend and payment date.
- Ownership of the stock on the payment date has no relevance to get eligible for dividend.
