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FinanceHow Dividends Work & What Dates You Should know!

How Dividends Work & What Dates You Should know!

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What are dividends?

Dividends are a distribution of some profits by a limited or public company to its shareholders.

How Frequent Are They?

There isn’t a set frequency for companies to pay dividends, it’s optional and determined by the board of directors. Companies can pay dividends annually, biannually, quarterly, monthly or not at all. Most cases companies in the US pay dividends quarterly and in the UK it’s biannually, which is the most common. In rare circumstances companies can also pay a special dividend, a one-off payment usually when they have had a very positive earnings report.

What are the dividend dates I need to know?

There are three dates that you will need to be aware of which are the “ex dividend date”, “record date” and the “pay date”.

Ex Dividend Date

This is usually set one business day before the record date, but this is determined by the exchange. Essentially, if you buy stocks on the ex dividend date or after you will not be entitled to receive the dividend for that period however the seller of that stock will receive the dividend payment.

Record Date

The record date is the cutoff date that companies use to decided which shareholders will be entitled to receive dividends. This date is set by the board of directors.

Pay Date

This is the payment date which dividends will be paid to eligible investors, this date can be up to a month apart from the ex dividend date. The share price may fall on the payment date as dividends are paid.

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