HH Everything You Need To Know About Dividends

 Investing in dividend paying stocks is a sure fire way of creating long-term wealth. Money will keep coming in every quarter and eventually your money will start growing exponentially due to compounding interest. 

As the writer/editor of a couple of dividend focused newsletters, I probably get the highest number of questions about stocks going ex-dividend. For as much as investors own and want to own high-yield stocks, the mechanics of ex-dividend, record, and payment dates are often not well understood. I will cover this and also some smart tactics as you accumulate a portfolio of high-yield stocks.

The Basics – Dividend Dates

When a company declares a dividend, the announcement will include the amount of the dividend, a record date, and the payment date. As an example, TCP Capital Corp(Nasdaq:TCPC) recently announced its next dividend payment this way:

“On May 7, 2015, our board of directors declared a second quarter dividend of $0.36 per share payable on June 30, 2015 to shareholders of record as of June 16, 2015.”

A point to understand: future dividends are not guaranteed, and you cannot be assured of earning a dividend until the official announcement as shown above. Most companies make quarterly announcements, and any changes to the dividend amount will hit the news at that time.

Back to the other dates.

The payment date is the day (or possibly the next day) that the dividend amount will show up in the cash balance of your brokerage account. That is the “payable on” date in the example above. To earn and receive the dividend, you must be an officially recognized owner of the shares on the record date or be a “shareholder of record”. The record date leads to the ex-dividend date. To own shares on the record date, your share purchase must have finalized or “settled” by that day. The U.S. stock market settlement process takes three business days. If you buy shares today, you buy at today’s share price but your purchase does not become official, or settled, until three business days from now. An investor who buys shares two business days or later before the record date will not be a share owner of record and will not receive the dividend. Thus, a stock goes “ex-dividend” two business days before the record date. In the case of the TCPC dividend announcement, the record date of June 15th is on a Monday, so the ex-dividend date was the preceding Thursday, June 11th.