Dividends are an allocated portion of a company's net income that is distributed to its shareholders as either a cash or share reward for their investment into the company.
4 Big Dates
There are four important dates investors should know when it comes to dividends. They are, the announcement date, the ex-dividend date, the record date, and the payment date.
- The announcement date is the date a company announces its dividends.
- The Ex-Dividend date is the date by which investors must purchase stock in order to be eligible for the company's next dividend payment.
- The record date is the date that a company has to decide which shareholders are and are not eligible for dividends of the a specific reporting period.
- The payment date is the date when shareholders will have the dividends funded to their brokerage accounts.
The frequency that dividends are dispersed vary from company to company.
Most companies pay dividends either quarterly or annually. However, funds comprised of multiple securities may pay dividends more often: as each company within a fund pays out its dividends, the fund will then subsequently disperse the dividends to their shareholders.
Companies that pay large dividends may indicate that a company is no longer investing in growing revenue, and will use dividends to reward existing shareholders and to draw new investors to the company.
Some investors seek equities that pay dividends in order to generate additional liquidity.