Do Dividends Have to Be Paid During the Period They Were Declared?
Some corporations choose to pay dividends to their investors. The corporation pays preferred stockholders first based on the stated dividend rate for that class of stock. The common stockholders receive the remaining dividend amount. Three important dates exist in regard to dividend payments. These dates usually occur in different accounting periods.
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Dividend Purpose
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Companies issue dividends for a couple reasons. First, companies want to reward their investors by returning a portion of the profits to them. Many investors choose to invest in certain companies because of their history of paying dividends. Second, after a history of paying regular dividends, the lack of paying dividends sends a negative message to the stock market. Investors perceive this as a result of poor performance by the company.
Date Of Declaration
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The board of directors meets regularly throughout the year to discuss company strategies and decide on various courses of action. These discussions often include whether or not to pay dividends and what dollar amount to pay. When the board of directors agrees to pay dividends, they also determine when the date of record and the date of payment shall occur. These dates usually occur in future accounting periods. The date of this meeting is considered the date of declaration.
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Date Of Record
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After declaring the dividend, the company manages the process of compiling the list of stockholders, the number of shares owned by each and calculating the dividend payment for each investor. The company compiles this list on the date of record. Each stockholder who owns shares of the company's stock at the close of the market on this date is entitled to receive a dividend payment. Stock transactions which occur the next day will not entitle the new stockholder to receive these dividend payments.
Date Of Payment
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The companies print and mail the dividend checks on the date of payment. These checks are mailed to everyone on the list of stockholders determined on the date of record. As a result of the time required to compile the list of stockholders on the date of record and print all of the checks, the date of payment usually occurs in an accounting period later than the time the board of directors declare the dividend.
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