The Dividend Fee Process Defined

Up to date on October 18th, 2024
By Bob Ciura, David Morris, & Ben Reynolds

The dividend fee course of could seem easy.  You put money into a dividend paying inventory, after which the dividends find yourself in your brokerage account when funds are made (usually quarterly).

Revenue buyers on the lookout for high quality dividend shares ought to begin with the Dividend Kings, a bunch of 53 shares which have raised their dividends for at the very least 50 consecutive years.

You may obtain a free checklist of all 53 Dividend Kings by clicking on the hyperlink under:

 

There’s truly 4 steps to the dividend fee course of that usually go unnoticed by dividend buyers:

1. Declaration date
2. Ex-Dividend date
3. Document date
4. Fee date

Buyers ought to develop into aware of all 4 phrases earlier than shopping for a dividend inventory, as having the ability to determine these dates will assist keep away from any potential confusion.

This text will talk about every time period intimately, and use two examples to point out how these dates could be simply discovered for particular firms.

Desk of Contents

Overview Of The 4 Step Dividend Fee Course of

Step #1:  First, an organization declares they’re paying a dividend.  That is the dividend declaration date.

Step #2:  Then, an organization decides which shareholders will obtain a dividend.  Shareholders who personal shares earlier than the ex-dividend date will obtain the following dividend fee.
Necessary Notice:  The ex-dividend date is 2 days earlier than the report date.

Step #3:  The report date is the date when the company truly seems at its data to find out who will obtain the dividend.

Step #4:  Lastly, the fee date is the fee date, when the dividend is definitely paid to shareholders.

What actually issues for shareholders is receiving the dividend in query.  And three essential dates decide who receives the dividend (and who doesn’t).

The primary essential date is your buy (transaction) date. When shares commerce palms, they really achieve this on the precise buy date, though the formal settlement date is often delayed by a couple of days time.

For dividend functions, the acquisition date could make a distinction. It’s essential to buy  at some point upfront of the ex-dividend date to obtain the dividend fee in query.

As mentioned above, the ex-dividend date determines whether or not it’s the purchaser or the vendor who receives the dividend. Buyers who buy shares on or after the ex-dividend date is not going to be paid that quarter’s dividend.

Buyers who buy shares earlier than the ex-dividend date will be paid that quarter’s dividend.

And at last, the fee date is the date the dividend fee is definitely despatched. Relying on the medium via which you personal your shares, dividends could also be mailed to you as a verify, wired into your checking account, or deposited into your brokerage account as money.

Dividend Declaration Date

The declaration date is the date on which the corporate’s Board of Administrators declares the following dividend fee to shareholders. It’s merely an announcement – no dividends are paid on the declaration date.

Typically, dividends are paid quarterly, so declaration dates are quarterly as properly.

Whereas dividends are under no circumstances assured, it’s typically a purpose of firm administration to develop their dividend funds over time.

It is a shareholder-friendly exercise that’s seen as an indication of underlying enterprise power, and is definitely mentioned in nice element at Board of Administrators conferences.

Corporations will typically make it very clear when their dividends are introduced by way of a press launch on their Investor Relations web site.

Document Date Versus Ex-Dividend Date

The report date and the ex-dividend date decide which shareholders are eligible to obtain firm dividends.

If shares commerce palms within the time main as much as a dividend fee, these two dates decide whether or not it’s the purchaser or the vendor who receives the dividend.

The report date is the date on which firm administration seems at their shareholder data to see who’s eligible to obtain the corporate’s future dividend fee. Nevertheless, this date is of little significance to buyers. Shopping for the corporate’s inventory on the report date doesn’t imply that you’ll obtain the corporate’s subsequent dividend.

Virtually talking, crucial date for dividend buyers to pay attention to is the ex-dividend date. This date, which is two days earlier than the report date, has a lot higher implications for portfolio administration.

Buyers who buy shares on or after the ex-dividend date is not going to be paid that quarter’s dividend (though they are going to be entitled to future dividends, assuming they nonetheless maintain the shares).

Buyers who buy shares earlier than the ex-dividend date will be paid that quarter’s dividend.

The rationale why the ex-dividend date is 2 days sooner than the report date is as a result of it takes three days for a commerce to ‘settle’ – for money and shares to legally commerce palms.

This appears counterintuitive. Anybody who has positioned trades earlier than is aware of that money is deposited to your account on the day that you simply promote shares.

Typically, that is just because your dealer is keen to entrance you the cash upfront whereas they wait to obtain cash from the counter-party. The precise course of takes three days to finish.

This is the reason you have to buy three days upfront of the report date (or at some point upfront of the ex-dividend date) to obtain the dividend fee in query.

The Fee Date

The fee date is the date on which company money is definitely paid to shareholder as a dividend. Relying on the medium via which you personal your shares, dividends could also be mailed to you as a verify, wired into your checking account, or deposited into your brokerage account as money.

Many firms additionally provide a Dividend ReInvestment Plan (or a DRIP, for brief). These plans enable buyers to make use of dividends to buy extra firm shares.

You may view the 15 greatest DRIP shares right here (every of the shares in that article cost no charges for his or her DRIPs).

Two Actual-Life Examples of the Dividend Fee Course of

Suppose an investor is seeking to provoke a place in high-quality dividend development inventory AbbVie Inc. (ABBV), which is one in every of our top-ranked dividend shares and a member of the Dividend Aristocrats.

You may obtain an Excel spreadsheet with the complete checklist of all Dividend Aristocrats (with extra monetary metrics equivalent to price-to-earnings ratios and dividend yields) by clicking the hyperlink under:

 

An investor buying the inventory right this moment would possible wish to make sure that she or he is eligible for the corporate’s subsequent quarterly dividend fee. As such, buyers must buy earlier than the corporate’s ex-dividend date.

The best approach to discover this date is by trying immediately on the corporate’s Investor Relations web page, which could be simply discovered by way of a Google search.

Buyers can see AbbVie’s dividend historical past within the Inventory Info portion of its Investor Relations web page.

There, buyers will discover that AbbVie has declared 4 dividend payouts of $1.55 per share up to now this yr, for a complete of $6.20 per share for 2024, after paying out $5.92 per share in 2023.

Supply: AbbVie Investor Relations

Making use of the identical methodology yields comparable outcomes for shopper staples big Procter & Gamble (PG), which has a fair longer dividend historical past than AbbVie.

PG has paid dividends for over 130 years, and has elevated its dividend every year for the previous 68 years in a row. PG is a Dividend Aristocrat, and a Dividend King as properly.

First, seek for PG’s dividend data on Google. Whereas the corporate’s Investor Relations web page may not be the primary end result, it’s nonetheless on the primary web page of the search engine and thus very simple to search out.

As soon as there, scrolling down results in a desk that’s much like AbbVie’s Investor Relations web page.

In distinction to AbbVie, PG has declared simply three dividends up to now in 2024 as of this date, with another to return. It’s possible that PG will declare its ultimate quarterly dividend payout of the yr in a short while.

These two examples present exactly how simple it’s to search out data on report dates, ex-dividend dates, and pay dates for company dividends.

Remaining Ideas

As buyers, there are various different extra essential points that we must be involved with, as a substitute of merely the timing {that a} particular firm makes use of to pay its dividends.

On an organization’s ex-dividend date, shares typically drop by an quantity roughly equal to the corporate’s subsequent dividend fee.

Buyers eager to ‘lock in’ the achieve of that dividend, however who don’t buy earlier than the ex-dividend date can nonetheless buy shares on the ex-dividend date at a reduction roughly equal to the dividend quantity.

Due to this, there is no such thing as a benefit to ready to buy shares.

As a substitute, give attention to creating a long-term systematic investing plan that shall be profitable no matter your timing of dividend funds.

Moreover, make sure that an organization’s dividend is sustainable for the long term. This requires an organization to have sturdy aggressive benefits, a steadily worthwhile enterprise mannequin even throughout recessions, and a optimistic development outlook.

For those who discover a firm that ranks favorably in line with a confirmed system such because the Certain Evaluation Analysis Database, purchase some shares and give attention to holding the inventory over the long-term.

Different Dividend Lists

The Dividend Aristocrats and Dividend Kings lists will not be the one approach to rapidly display for shares that usually pay rising dividends.