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Stocks & Bonds

What You Must Know About a Stock's Dividend Date

Timing is everything when it comes to collecting on dividend-paying stocks.

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In today’s low-interest-rate environment, investors can’t seem to get enough high-yielding dividend stocks. But pay close attention to a company’s payment schedule. Otherwise, you could miss out on collecting a dividend you believe you’re entitled to.

Quiz: How Well Do You Know Dividends?

The critical deadline to mark on your calendar is a firm’s “ex-dividend” date (available on websites such as Yahoo Finance and in the investor-relations section of a company’s website). If you own shares before that date, you’ll lock in the next payment. But investors who buy on or just after the ex-date give up the rights to the next dividend payment.

To see how this works, consider General Electric’s payment schedule. The company announced on June 10 that it would pay a dividend on July 25 to shareholders “of record” as of June 20. To be eligible for the dividend, investors had to own shares before the stock’s ex-dividend date of June 16. The ex-date always lands two business days before the record date. In this case, the record date fell on a Monday, which pushed the ex-date back to Thursday, June 16. Buying GE anytime before the market closed on June 15, even in the final second of trading, would entitle you to its next dividend.

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Purchasing the stock on or just after the ex-date would disqualify you from the payment. That can sting, especially if it’s a high-yielding stock, such as an electric utility or a telecom company. Many of these stocks yield more than 4%, so missing a payment could leave a hefty amount of income on the table. Moreover, companies often make their dividend payment several weeks after the ex-date. That’s also a danger zone because buying shares at any point in that stretch would still leave you off the company books as a “shareholder of record” entitled to receive the next dividend.

One other caveat: Be aware of how a stock can trade on the ex-date. Typically, shares open lower by roughly the amount of the upcoming dividend. Buying on that day may get you a lower price, but you will typically have to wait about three months before you collect the next disbursement.

If you’re interested in a dividend stock, first check the date of the next payment. Buy shares before the stock goes ex-dividend the next time. Also note that if you sell shares after the ex-date, you’ll still collect the upcoming payment. Either way, make sure to stay on the receiving end of the dividend income line.

See also: 6 Good Dividend Stocks Yielding 5% or More