Dividend Payment Procedures of a Company
A dividend is a distribution of a percentage of a firm’s earnings, decided by the board of owners, to a class of its investors. Dividends can always be issued as funds payments, as gives of stock, or other property.
The dividend payment procedures of a firm can be outlined as follows:
- Declaration Date
The declaration date is the starting point for the dividend payment procedure. The board of directors of the company announces that a specified amount of dividend will be paid to the stockholders. On this date, the board of directors officially announces the payout of cash dividends. It is paid to the stockholders who will be on the record on the company’s record at some particular future date. The date on which directors meet and announce dividend is called declaration date.
Generally, the dividend is announced as a percentage on the par value of the stock. The released document also contains information about the number of dividends per share, the ex-dividend date, the record date, and the payment date.
- Date Of Record
This date is critical in the dividend payment procedure. Along with the dividend announcement, the board of directors also specifies a date of record. For example, if the board of directors meets on June 10, 2010, and declares a 10 % cash dividend to the stockholders of record on September 15; the July 10 is called declaration date and the September 15 is called date of record. The management of a company compiles a shareholder register, which includes shareholders eligible for cash dividends.
- Ex-dividend Date
The ex-dividend date is a cutoff point for new investors in the dividend payment procedure. There can be a delay of several days from the time a transfer takes place to the time the firm is informed of the transfer. Therefore, shares transferred on, say September 12, would not generally record on the company’s book. In normal practice, the buyer and seller of the stocks have four business days to settle the transactions prior to the date of record.
All investors who have bought shares on this date or later are not eligible for cash dividends. Investors who owned shares before the ex-dividend date will be included in the shareholder register.
- Payment Date
The payment date finalizes the dividend payment procedure. At the time of dividend announcement, the board of directors also specifies the date on which the payment of dividend is actually made and it is called the payment date. On this date, a company pays out cash dividends to all eligible shareholders who were included in the shareholder register on the record date. On this date, the company actually pays the dividend to all the stockholders of the date of record.