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How to Ensure You Never Miss Another Dividend Payment

Stephen Mauzy

 “Why didn’t I receive my dividend?”

This question recently crossed my e-mail.  A subscriber to one of our Wyatt Investment Research services was perplexed. He thought he had owned a stock for a sufficient time to collect a dividend, but the dividend never came.

Upon further research, I discovered that the subscriber failed to own the stock across the pertinent dates. He thought he had timed his purchased correctly, when in fact he hadn’t.

This isn’t all that unusual. Investors are frequently confused by dividend dates. They’re unsure what the dates mean, or which ones matter. Confusion can mean missing a dividend payout. Let’s see if we can end the confusion.

You’ll encounter four dates related to every dividend payment:

  • Declaration Date – This is the first date you’ll encounter. It’s the date a company’s board of directors announces an upcoming dividend. The press release accompanying the declaration date will include the dividend amount, the record date, the ex-dividend date, and the dividend payment date.
  • Ex-Dividend Date – This is the most important date. If a stock is sold before the ex-dividend date, the buyer, not the seller, collects the dividend. To collect an upcoming dividend, the stock must be bought at a minimum of one day before the ex-dividend date. For example, if a stock is scheduled to go ex-dividend on Sept. 30, you would need to buy that stock no later than the close of trading on Sept. 29. (Of course, if you already own the stock, there’s nothing to do.)
  • Record Date – This is the date that determines who owns the stock. Once a company sets the record date, the ex-dividend date is set by the stock exchange. The record date works in tandem with the ex-dividend date so that the dividend is distributed to the rightful owner. Settlement is a T+3 procedure (transaction date plus three days). This means it takes three business days for the transaction to be entered in the company’s records after a transaction. If a stock trades ex-dividend on Thursday, the record date would be the following Monday. But because of the T+3 procedure, the stock would need to be bought no later than the close of trading on Wednesday.
  • Payment Date – This is the date an investor will see the dividend credited to his brokerage account.

That’s the way it usually works, but not always. There is an exception to this typical flow, and this exception is what tripped up our confused subscriber.

Special dividends that amount to 25%-or-more of the prevailing share price are subject to a special rule for the ex-dividend date. The major difference is that ex-dividend date is set the day AFTER the dividend payment date. The flow changes to the following order:

  • Declaration Date
  • Record Date
  • Payment Date
  • Ex-Dividend Date

For example, Source Capital (NYSE: SOR) declared a $33.65 per-share special dividend – a payout that was 50% of the market price – on Feb. 8, 2016.  The ex-dividend date was set on March 16, which was after the record date, Feb. 19, and the payment date, March 15.

If Source Capital shares were sold after the record date but before the ex-dividend date, they were sold with a book entry called a “due bill.” This denotes that Source Capital will pay the dividend to whoever owned the shares at the close of trading on the payment date. Conversely, if Source Capital shares were sold after the record date but before the ex-dividend date, the buyer would still be entitled to the dividend and would still receive it via the due bill process.

In simplest terms, the “record date” usually, but not always, determines who is entitled to a dividend. The ex-dividend date ALWAYS identifies who is ultimately entitled to receive a dividend payment. Whoever owns the shares at the close of trading on the day before the ex-dividend date is always entitled to the dividend.

 

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