Date of declaration: This is the date when a company reports a quarterly dividend and the subsequent payment dates. On January 15, for example, a company may report that it “is pleased to announce a quarterly dividend of 50 cents per share to shareholders of record as of February 10.” That was easy. The date of declaration is really just the announcement date. Whether you buy the stock before, on, or after the date of declaration doesn’t matter in regard to receiving the stock’s quarterly dividend. The date that matters is the date of record (see that bullet later in this list).
Date of execution: This is the day you actually initiate the stock transaction (buying or selling). If you call up a broker (or contact one online) today to buy (or sell) a particular stock, then today is the date of execution, or the date on which you execute the trade. You don’t own the stock on the date of execution; it’s just the day you put in the order. For an example, skip to the following section.
Closing date (settlement date): This is the date on which the trade is finalized, which usually happens one business day after the date of execution. The closing date for stock is similar in concept to a real estate closing. On the closing date, you’re officially the proud new owner (or happy seller) of the stock.
Ex-dividend date: Ex-dividend means without dividend. Because it takes one day to process a stock purchase before you become an official owner of the stock, you have to qualify (that is, you have to own or buy the stock) before the one-day period. That one-day period is referred to as the “ex-dividend period.” When you buy stock during this short time frame, you aren’t on the books of record, because the closing (or settlement) date falls after the date of record. However, you will be able to buy the stock for a slightly lower price to offset the amount of the dividend. See the next section to see the effect that the ex-dividend date can have on an investor.
Date of record: This is used to identify which stockholders qualify to receive the declared dividend. Because stock is bought and sold every day, how does the company know which investors to pay? The company establishes a cut-off date by declaring a date of record. All investors who are official stockholders as of the declared date of record receive the dividend on the payment date, even if they plan to sell the stock any time between the date of declaration and the date of record.
Payment date: The date on which a company issues and mails its dividend checks to shareholders. Finally!
For typical dividends, the events in Table 1-2 happen four times per year.
TABLE 1-2 The Life of the Quarterly Dividend
| Event | Sample Date | Comments |
|---|---|---|
| Date of declaration | January 15 | The date that the company declares the quarterly dividend |
| Ex-dividend date | February 9 | Starts the one-day period during which, if you buy the stock, you don’t qualify for the dividend |
| Date of record | February 10 | The date by which you must be on the books of record to qualify for the dividend |
| Payment date | February 27 | The date that payment is made (a dividend check is issued and mailed to stockholders who were on the books of record as of February 10) |
Understanding why certain dates matter
As an example, say that you want to buy ValueNowInc (VNI) in time to qualify for the quarterly dividend of 25 cents per share. Assume that the date of record (the date by which you have to be an official owner of the stock) is February 10. You have to execute the trade (buy the stock) no later than February 8 to be assured of the dividend. If you execute the trade right on February 9 (the ex-dividend date), you will not qualify for the dividend because settlement will occur after the date of record.
But what if you execute the trade on February 10, a day later? Well, the trade’s closing date is February 11, which occurs after the date of record. Because you aren’t on the books as an official stockholder on the date of record, you aren’t getting that quarterly dividend. In this example, the February 9–10 period is called the ex-dividend period.
Evaluating Investment Tips
Here’s a tip: Never automatically invest just because you get a hot tip from someone. Good investment selection means looking at several sources before you decide on a stock. No shortcut exists. That said, getting opinions from others never hurts — just be sure to carefully analyze the information you get. Here are some important points to bear in mind as you evaluate tips and advice from others:
Consider the source. Frequently, people buy stock based on the views of some market strategist or market analyst. People may see an analyst being interviewed on a television financial show and take that person’s opinions and advice as valid and good. The danger here is that the analyst may be biased because of some relationship that isn’t disclosed on the show. Analysts are required to disclose conflicts of interest on business channels.
Get multiple views. Don’t base your investment decisions on just one source unless you have the best reasons in the world for thinking that a particular, single source is outstanding and reliable. A better approach is to scour current issues of independent financial publications, such as Barron’s or Money magazine, and other publications and websites.
Gather data from the SEC. When you want to get more objective information about a company, why not take a look at the reports that firms must file with the SEC? These reports are the same reports that the pundits and financial reporters read. Arguably, the most valuable report you can look at is the 10K. The 10K is a report that all publicly traded companies must file with the SEC. It provides valuable information on the company’s operations and financial data for the most recent year, and it’s likely to be less biased than the information a company includes in other corporate reports, such as an annual report. The next most important document from the SEC is the 10Q, which gives the investor similar detailed information but for a single quarter. To access 10K and 10Q reports, go to the SEC’s website (www.sec.gov). From there, you can find the SEC’s extensive database of public filings called EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system). By searching EDGAR, you can find companies’ balance sheets, income statements, and other related information so that you can verify what others say and get a fuller picture