Explore the essential details about dividends in equity securities, including dividend policy, payment methods, ex-dividend dates, dividend reinvestment plans, and stock dividends.
Dividend policy is determined by a company’s board of directors and is guided primarily by the company’s size, goals, financial position, and the industry in which it operates. For example, a large, established company such as a bank may pay out a substantial percentage of its earnings as dividends to shareholders, whereas a growing tech company may retain a higher proportion of earnings to fund research and development.
Most companies retain a portion of their earnings each year to maintain operations and finance growth. In the long run, this policy benefits shareholders if it results in increased earnings. However, dividends may be reduced or halted, particularly during poor economic times, and investors should recognize this as one of the risks of common share investment.
Companies paying dividends on common shares may designate a specified amount to be paid each year as a regular dividend. The term “regular” indicates to investors that, barring a major collapse in earnings, those payments will be maintained.
Some companies may pay an extra dividend on the common shares, often at the end of the company’s fiscal year. The extra payment is a bonus paid in addition to the regular dividend, and the term “extra” indicates that investors should not assume the payment will be repeated the following year.
Companies may pay dividends once, twice, or four times a year. Unlike interest on debt, dividends on common shares are not a contractual obligation. The board of directors decides whether to pay a dividend, and if so, the amount and payment date. An announcement is made in advance of the payment date.
For shares registered in the name of the owner, dividend payment cheques are mailed directly to the owner. For shares registered in street certificate form, dividend payments are made to the securities firm whose name appears on the certificate, which in turn credits the accounts of clients owning the shares.
Many companies place advertisements in financial newspapers announcing the declaration of a dividend. A typical dividend announcement includes the payment date and the record date. All shareholders recorded as of this record date are entitled to the declared dividend.
Date Traded | Date Settled | Ex-dividend or Cum Dividend |
---|---|---|
Monday, June 9 | Wednesday, June 11 | Cum Dividend |
Tuesday, June 10 | Thursday, June 12 | Cum Dividend |
Wednesday, June 11 | Friday, June 13 | Cum Dividend |
Thursday, June 12 | Monday, June 16 | Ex-dividend |
Friday, June 13 | Tuesday, June 17 | Ex-dividend |
Monday, June 16 | Wednesday, June 18 | Ex-dividend |
When a stock is actively traded, the record of shareholders is continually changing. For convenience, the issuing company names a
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