What is a Declaration Date?
In the income investing world, a declaration date is the date on which a company announces an upcoming dividend payment, usually by issuing a press release a few weeks before the dividend is actually paid.
How Does a Declaration Date Work?
Let's assume you own 100 shares of Company XYZ. At the end of the quarter (say, March 30), Company XYZ calculates its financial performance. The board of directors then reviews this information, including Company XYZ’s profit margin, and declares via an April 30 press release a $0.10 dividend per share for the quarter, payable on May 15 to shareholders of record as of May 1. In this case, the declaration date is April 30.
Why Does a Declaration Date Matter?
The dividend declaration date is one of several important dates to note when a company's board of directors declares a dividend. The others include:
- Record Date: This is the date on which a company reviews its books to determine its 'shareholders of record.' Shareholders who hold a particular stock on this date will receive the firm's dividend payment.
- Ex-Dividend Date: After the record date has been determined, the stock exchanges or the National Association of Securities Dealers (NASD) assign the ex-dividend date. The ex-dividend date for stocks is typically two business days prior to the record date. If an investor buys a stock before the ex-dividend date, then he or she will receive the dividend payment. If an investor purchases the stock on or after the ex-dividend date, then he or she is not entitled to receive the dividend. On the ex-dividend date, a company’s share price usually declines to reflect the amount of the dividend paid. For example, if a stock is trading at $100 and pays a quarterly dividend of $3 per share, then, all other things being equal, the stock will open on the ex-dividend date at $97.
Many things influence the timing and size of dividends. Dividend-paying companies typically declare dividends on a regular basis (usually quarterly), but in general a corporation is not required to pay dividends, nor is it required to pay a dividend of the same size, even if it has done so in the past. Even if a company declares a dividend, some of the company’s shareholders may not be eligible for it: Companies with more than one class of stock often set forth dividend preferences among those classes.
Further, corporations do not always have to declare cash dividends -- in some cases they may declare stock dividends. Occasionally, a company will declare an extra dividend after a particularly good year or if it is going out of business -- in which case the dividend is essentially a distribution of the proceeds of asset liquidation.
