Dividends

Dividends are typically paid quarterly. If a corporation elects to pay a dividend, shareholders will receive cash, or occasionally stock, for each share owned. Dividends are paid at the discretion of the company’s board of directors and the amount may increase or decrease from quarter to quarter.

Dividends are paid to common stockholders and preferred stockholders. Preferred stock typically pays a higher dividend rate and is issued before common stock dividends.

The board of directors may elect not to pay a dividend for various reasons, including cash flow concerns or large upcoming capital investments. Corporations may refuse to declare a dividend if they believe the growth rate of the business justifies retaining those funds.

Dividends can have tax implications for investors. The majority of dividend payments are known as “ordinary” distributions, and these payments are taxed at the investors ordinary income rate. Certain distributions may be classified as “qualified” and are taxed at the capital gains rate.

Dividend yield refers to the percentage return a stockholder receives in dividends relative to the current stock price. The dividend yield is calculated by dividing dividends per share by market price per share. For example, if the share price is $50 and the dividend paid is $1.00, the dividend yield would be 2%.

Declaration date

The declaration date is the day a corporation declares or announces an upcoming dividend payment to stockholders. The amount of the dividend, the record date, and the payment date are announced on the declaration date.

Ex-Dividend date

The ex-dividend date is the day a security begins trading without the value of the next dividend. To receive the upcoming dividend payment, the stock must be purchased or owned before the ex-dividend date.

The ex-dividend date is before the record date.

Record date

The record date (or holder of record date) is the day set by the corporation to determine who is entitled to receive the declared dividend payment. To receive the dividend payment, a stockholder must own the stock as of the record date and the ex-dividend date.

The record date is after the ex-dividend date and before the payment date.

Payment date

The payment date is the day on which stockholders of record will receive his or her dividend payment.

For example, a company announces a dividend on the declaration date. To receive the dividend, the stock must be purchased before the ex-dividend date. Shareholders as of the date of record are entitled to the dividend payment.

The dividend is paid on the payment date. A stock with a holder-of-record date of June 4 will go ex-dividend on June 2. To receive the dividend, the stock must be purchased by June 1. The dividend payment date is June 15 to stockholders of record.