How do dividend dates work

Timing matters with this plan. Buyers who buy and hold stocks and mutual funds that pay dividends are wise to be aware of how they work. This includes the dividend dates, which define when and if owners qualify to receive the payment. Trying to time the purchase of dividend stocks or mutual funds can be risky and may not work out for all those who invest.

Rowe Price. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content.

Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. The Balance Investing. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile.

Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Are you mystified by the workings of dividends and dividend distributions? Chances are it's not the concept of dividends that confuses you. The ex-dividend date and date of record are the tricky factors. Briefly, in order to be eligible for payment of stock dividends, you must buy the stock or already own it at least two days before the date of record.

That's one day before the ex-dividend date. Some investment terms are tossed around more than a Frisbee on a hot summer day, so first let's fill in some of the basics of stock dividends. There are actually four major dates in the process of a dividend distribution:. The decision to distribute a dividend is made by a company's board of directors.

Essentially, it is a share of the profits that is awarded to the company's shareholders. Many investors view a steady dividend history as an important indicator of a good investment, so companies are reluctant to reduce or stop regular dividend payments. Dividends can be paid in various ways, but the big two are cash and stock. For example, suppose you own shares of Cory's Brewing Company. Cory has enjoyed record sales this year thanks to the high demand for its unique peach-flavored beer.

In practice, companies that pay dividends issue them four times a year. A one-time dividend such as the one in this example is called an extra dividend. The stock dividend, the second-most common dividend paying method, pays in shares rather than cash. You will receive five shares for every shares that you own.

If any fractional shares are left over, the dividend is paid as cash because stocks don't trade fractionally. Another and rarer type of dividend is the property dividend, which is a tangible asset distributed to stockholders. Investors typically prefer to invest in companies that offer dividends that increase year after year, which helps outpace inflation.

Dividends are more likely to be paid by well-established companies that no longer need to reinvest as much money back into their business. High-growth companies, such as tech or biotech companies, rarely pay dividends because they need to reinvest profits into expanding that growth. The most reliable American companies have a record of growing dividends — with no cuts — for decades.

Dividends on common stock are not guaranteed. However, once a company establishes or raises a dividend, investors expect it to be maintained, even in tough times. Because dividends are considered an indication of a company's financial well-being, investors often will devalue a stock if they think the dividend will be reduced, which lowers the share price. One note: Investors who don't want to research and pick individual dividend stocks to invest in might be interested in dividend mutual funds and dividend exchange-traded funds ETFs.

These funds hold many dividend stocks within one investment and distribute dividends to investors from those holdings. An investor can use different methods to learn more about a company's dividend and compare it to similar companies. As mentioned above, companies that can increase dividends year after year are sought after. The dividend per share DPS calculation shows the amount of dividends distributed by the company for each share of stock during a certain time period. Yield and stock price are inversely related: When one goes up, the other goes down.

The company could raise its dividend. The stock price could go down while the dividend remains unchanged. During tougher times, earnings might dip too low to cover dividends. Like a stock's dividend yield, the company's payout ratio will be listed on financial or online broker websites. Disclosure: The author held no positions in the aforementioned securities at the original time of publication. How do stock dividends work? Types of dividends.

Learn More. How often are dividends paid?