Dividend Dates And Payments - Newbie Questions

crimsonfin

Hoping someone more informed out there can help confirm (or correct) my understanding of how dividend dates/payments work. I've put together the following notes from several sources to try and help my better understand the dividend process ....

Declaration Date

• the date on which a company's board of directors announces it will pay a dividend

Books Closing Date / Record Date

• the date on which shareholders must be on a company's share register in order to receive dividend
• Technically 3 days before this date is the last actual date to own the shares if you want the dividend due to "T+3 Settlement Period" ("T3" meaning trading plus 3 days) - see "Ex Dividend Date"
• When an investor buys shares through a broker the moment the trade is executed the investor is the economic owner and benefits from any gains or loses in its price. The actual settmentment date (when money is exchanged and share is transfered between seller and buyer) doesn't happen until 3 days after the trade is executed hence the delay on which you end up on a company's list of registered shareholders.

Ex Dividend Date

• This is the date on which you need to have bought shares immediately BEFORE in order to receive the dividend
• On this date (and this date only) listings of the share will be marked with a "x" to indicate that anyone buying the share will not be elligible for the dividend
• Selling your share before this date means you loose your entire dividend entitlement
• Owning shares on or after this date means you are entitled to 100% of the dividend (dividends are not calculated on a pro-rata basis)

Payment Date

• the date on which the company transfers the dividend payment to its investors

So an example : Company "MickeyMouse Ltd" announces a dividend of 8p per share.

01/06/2011 - Declaration Date ( an arbitrary date )

MickeyMouse Ltd shares trading at £1.50 per share

10/06/2011 - Record Date ( an arbitrary date )

MickeyMouse Ltd shares trading at £1.50 per share

07/06/2011 - Ex Dividend Date ( 3 working days previous to above date )

MickeyMouse Ltd shares trading at £1.42 per share (share price is reduced as the value of the company has just been directly reduced by the amount of the dividend payment)

28/06/2011 - Declaration Date ( an arbitrary date )

And onto my questions :

1. Are all of my notes above correct ?
2. If MickeyMouse Ltd pays its dividends quarterly do I receive all of my 8p dividend (2p per share per quarter over next 12 months) even if i sell my shares after the ex-dividend date ?
3. If I were to sell my shares on 08/06/2011 I assume i would still be on the company's shareholder list on the Ex Dividend Date (due to T+3) hence i would still receive my dividend ?

Thanks for any help you can provide.

Biggles

1 As a rule, the record date is two working days after the ex-dividend date.

2 In the case of quarterly (or half-yearly) dividends, a separate xd and record date is announced for each payment.

3 If you sold your shares on 8 Jun, you would only get 142p for them and would receive the dividend of 8p at a later date.

4 I'd never invest in a company with that name in the first place......

crimsonfin

Thanks for the reply biggles. Confused by your reply (2) though.

In (3) you imply that I would get all of my 8p dividend if i sold my shares but in (2) you state that there are future ex-dividend dates for bi annual/quarterly dividends. Surely i would need to hang onto my shares to qualify if this was the case ?

take your point (4) though. DonaldDuck Inc is the way to go !

cheers

Ark_Welder

Each time a company declares a dividend then that is the amount that will be paid once the shares go ex-div. If there are So iuartely dividends then there will be four sets of dates and dividends. If the total dividend for the year was 8p then each dividend declaration would be for 2p and the xd price after the first dividend would be 148p.

Companies can offer guidance to what dividends might be paid in the forthcoming year but they are unable to definitevly state what will be paid (legal reasons, I believe, but can't say what they are off the top of my head).

chris_m

Ark_Welder wrote: »

Companies can offer guidance to what dividends might be paid in the forthcoming year but they are unable to definitevly state what will be paid (legal reasons, I believe, but can't say what they are off the top of my head).

Dunno about legal reasons, but good financial management will be one reason - they can forecast/anticipate/guess what the turnover/profit for the forthcoming year will be, but it won't be known for sure until the books are in.
No sensible company board would promise a divvie of, say, 10p on the assumption that profits will be, say £1M because they don't know that for sure. If the profits fall off drastically, they could be left unable to afford that divvie.

Ark_Welder

chris_m wrote: »

Dunno about legal reasons, but good financial management will be one reason - they can forecast/anticipate/guess what the turnover/profit for the forthcoming year will be, but it won't be known for sure until the books are in.
No sensible company board would promise a divvie of, say, 10p on the assumption that profits will be, say £1M because they don't know that for sure. If the profits fall off drastically, they could be left unable to afford that divvie.

Quite probably. I'm just recalling all the disclaimers that I've seen in annual reports about how a dividend forecast should not be relied upon. Probably some wag would do so and then try to take the company to court if they failed to deliver!

chris_m

Ark_Welder wrote: »

Probably some wag would do so and then try to take the company to court if they failed to deliver!

That's a very likely reason for including the disclaimers TBH.

Biggles

crimsonfin wrote: »

Thanks for the reply biggles. Confused by your reply (2) though.

In (3) you imply that I would get all of my 8p dividend if i sold my shares but in (2) you state that there are future ex-dividend dates for bi annual/quarterly dividends. Surely i would need to hang onto my shares to qualify if this was the case?

Sorry, I was using your example of the share price falling to 142p. That only applies if they were declaring a single payment of 8p. If they were declaring a quarterly dividend of 2p, the price would fall to 148p and that would be all you received until the next declaration.

As suggested by Ark Welder, if a company, in their final results, declares a total dividend for the year of 8p, this will often be made up of one interim dividend (or three quarterly dividends) that have already been paid plus a final dividend, for which they will announce the relevant dates.

You won't know the amount of the dividends for the financial year that has just started until the first (interim or quarterly) results, though companies will often state their dividend policies as guidelines.

Just_landed

Dividend dates explained Link :-


http://www.investopedia.com/articles/02/110802.asp#axzz1couW9100

crimsonfin

Great - thanks for all your help folks, much appreciated.