Wednesday, March 18, 2009

How and when is a dividend paid?

ave you ever wonder when and how dividends are paid but found the process too complex to understand. I have been there so here is a detailed but simple explanation about how these things are done.

So you have bought some stocks and as a result you now have the right to receive dividends from the companies. A dividend is just a share of the profit that the company will give you. Not all companies pay a dividend but it is better for an investor to invest in a company that pays dividend. Hence the paying of a dividend will be an indication of the company good health and by monitoring the dividend payments you will have an idea about the health of the company.

Dividends can paid either cash or . The company will pay a certain amount of money for every share that an investor is holding on the due date or the company might issue to each investor an additional number of shares. A dividend is usually paid in term of shares only if the company has a temporary problem of cash flow. You should be careful as dividend payment in term of shares is not necessarily a sign of a bad company. A good company that has strong fundamentals may have problems of cash flow in a recession and as a result will not be able to pay cash dividends.

So how and when are dividends paid?

It is the board of directors that take the decision to pay a dividend. There are four important dates and they are as follows :

(i) The declaration date - It is the date on which the company declares that it will pay a dividend

(ii) The ex- dividend date - A stock that is bought on this date and after will not receive the dividend. If you want to sell a stock you can sell on this date and still receive the dividend.

(iii) The date of record - This is the date where the company will check the record and will send the dividend to every person and company on the list. This date is usually one day before the ex-dividend date.

(iv) The date of payment - This date is usually after the date of record. It is the date at which the check is issued to you. You need not worry that it is some time after the date of record. You will definitely receive your check but it might take some time.

I hope that you have understood that well. By the way if you have some questions for me place a comment and tick the receive comment by email and you will receive the answer in a short time.

Good luck guys

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