Last week we have discussed about dividends and why investors are inclined to use it to increase their returns. Today I want to tell you more on the important dividend dates and what it means. We shall use below actual dividend declaration made by Globe Telecom, Inc. (PSE:GLO) last August 6, 2012.
Declaration Date
Receiving dividend income starts when the company's board of directors have agreed to pay its investors a certain amount per number of shares they hold. Declaration date is the period when the company announces to the investing public to pay out dividends.
Record Date
This is the date when the stockholders of record are entitled to receive dividends. In the above example, The record date is set on August 28, 2012. This means that every stockholder who appears in the company records as having owned shares as of August 28 will get dividends.
Ex-Dividend Date
For a listed company, buying and selling of shares commonly take place and give rise to an important question - How do we determine who is entitled to dividend? In the Philippines, it usually takes three business days for a transfer of ownership to be cleared and appear in the company records. Ex-dividend date is one day prior to the date that a person must own a share of stock for it to appear on the records and be entitled to dividend. In our GLO example, August 28 falls on a Tuesday. Since August 27 is a declared Philippine Holiday, the ex-date would be on August 22 (the three day clearing period being Aug. 22, 23 and 24). This means that you must have bought GLO shares before August 22 to be entitled to dividends.
Payment Date
This is the date when the stockholders will receive the dividend.
Companies know the importance of declaring dividends specially for listed entities because it helps them attract more investors and reflects good standing. But it also doesn't mean that companies that do not pay off investors through dividends should not be invested in. It may be that the management chose to reinvest the income they earned to use for expansion, debt reduction or other business activities. Bill Gates' Microsoft, for example, did not pay dividend until it had become a $350 billion company. It is up to us investors to know which ones we prefer and take that as a guide on how we use our investment money.
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