dividend

Case Study Stockholders are required to wrestle with four relevant dates for each dividend a company pays. These are:

Announcement or declaration date: The date a firm's directors tell shareholders and the investment community the size of the next dividend, when the dividend will be paid, and when an investor must be recorded as an owner in order to receive the payment

Ex-dividend date: The first day when a new purchaser of the stock will not receive the declared dividend. If an investor buys the stock on or after the ex-dividend date, he or she will not receive the upcoming dividend payment.

Stockholder-of-record or record date: The date by which an investor must be registered on the firm's books as a shareholder in order to receive the declared dividend

Payment date: The date on which the declared dividend is scheduled for payment.

Of these four dates, the ex-dividend date is most important to investors. Shares must be purchased at least one business day prior to the ex-dividend date for the buyer to claim a dividend that has been announced but not yet paid. Buy shares of stock on the ex-dividend date, and the seller, not the buyer, will receive the upcoming dividend. The ex-dividend date is two business days prior to the record date, because three days are required for regular settlement of a stock transaction. Buy stock on Tuesday, and an investor will be listed as the owner of record on Friday, the day that payment is required for the stock purchase. If a firm's directors have declared that a dividend will be paid to stockholders of record on Friday, the stock must be purchased by Tuesday in order to have a right to the dividend. In this case the ex-dividend date is Wednesday, two days prior to the record date. Relevant dates for the common stock of home products giant Procter & Gamble for 2006-07 are illustrated below.Notice that the record date for each quarterly dividend follows the ex-dividend date by two business days. In the first quarter an investor must have purchased the stock by April 18 to be listed as a stockholder on April 21 and receive the dividend paid on May 15. An investor purchasing the stock on April 19 would not have been listed as a stockholder of record until April 22, one day beyond when the company determined who was to receive the dividend. A weekend or holiday between the ex-dividend and record dates lengthens the time difference to four days or three days, respectively. The schedule for Procter & Gamble indicates owners of the stock on the day prior to the ex-dividend date must wait nearly a month for actual payment of the dividend.