DEFINITION: A dividend (a specific type of Corporate Action) is a payment made by a company to its shareholders, usually as a distribution of profits. Distribution to shareholders can be in cash (usually a deposit into a shareholder account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.
Every time a company pays a dividend, it must be officially declared by the board of directors. Public companies usually pay dividends on a fixed schedule (generally issued half-yearly for cash dividends), but may occasionally decide to pay a one-off special dividend at any time.
In terms of the dividend process, there are a few important dates to be aware of:
- Dividend declaration date
The day on which the board of directors announce that a dividend will be paid.
- Last day to Trade (LDT)
This is the last date on which a person can acquire shares in order to qualify for or participate in the dividend.
- Ex-dividend date
As share transactions can take time to clear, it is important in terms of the accurate allocation of dividends, to have a cut-off so that complications over share ownership can be avoided.
At this cut-off point (ex-dividend date), usually two or three days before the record date, a person must own shares in the company in order to be listed as a shareholder and receive a dividend.
Once the ex-dividend date has passed, provided a shareholder is officially listed, he / she can sell the share and still receive the dividend.
The number of days between the ex-dividend date and the record date is usually 5 business days.
- The record date
The date on which the company officially determines who the shareholders are who qualify for a dividend.
The number of days between the record date and the payment date varies from company to company, most often between one and six weeks, though the period may be shorter or longer.
- The payment date
This is the day the dividend is paid out to shareholders. A long time can elapse between the ex-dividend date and the payment date.
To find out how you will know when a dividend has been paid, please consult this FAQ article - How do I know a dividend has been paid?
To see how dividends are declared - click HERE