The date of declaration or ‘declaration date’ is that the date on which a company announces an upcoming dividend payment, usually by issuing a press release a few weeks before the dividend is actually paid. The declaration date is also referred to as the “announcement date.”
In addition to being the date on which the next dividend payment is announced, the declaration date is also the last day on which the holder of an option must indicate whether they will exercise the option. This is also known as the “expiration date.”
A cash dividend is largely the company’s savings that the board of directors decides to offer back to the shareholders. The board of directors must weigh many alternative strategic options after they consider declaring dividends. They need to create sure the company has enough operating cash additionally as enough cash to take a position in new operations and expansions. The board also needs to take into consideration investors. Paying dividends will most like spur investor’s interest and drive the stock price up. Therefore the decision to declare dividends really comes right down to what’s management’s objective.
The dividend declaration date is one of several important dates to note when a company’s board of directors declares a dividend. The others include:
- Record Date: This is the date on which a company reviews its books to determine its “shareholders of record.” Shareholders who hold a particular stock on this date will receive the firm’s dividend payment.
- Ex-Dividend Date: After the record date has been determined, the stock exchanges or the National Association of Securities Dealers (NASD) assign the ex-dividend date. The ex-dividend date for stocks is typically two business days prior to the record date. If an investor buys a stock before the ex-dividend date, then he or she will receive the dividend payment. If an investor purchases the stock on or after the ex-dividend date, then he or she is not entitled to receive the dividend. On the ex-dividend date, a company’s share price usually declines to reflect the number of the dividend paid.
For example, the payment date is when the dividend is received, the ex-dividend date is that the last date an investor must hold a share to be eligible for a dividend, and also the record date is that the date by which a shareholder must be registered with the company. Once a dividend is allowed, it becomes a declared dividend. It becomes the company’s legal liability to pay it.
Investors pay close attention to records of dividend payments; receiving dividends is an important component of many income-focused investment strategies. These can be standalone approaches to maintaining a steady income without much risk and/or an addition to a broader portfolio strategy.
Many things influence the timing and size of dividends. Dividend-paying companies typically declare dividends on an everyday basis (usually quarterly), but in general, a company is not required to pay dividends, nor is it required to pay a dividend of the same size, even if it has done so within the past. Even if a company declares a dividend, a number of the company’s shareholders might not be eligible for it. Occasionally, a company will declare an extra dividend after a particularly good year or if it is going out of business in which case the dividend is essentially a distribution of the proceeds of asset liquidation.
Declaration dates are also associated with stock options as it is the last date an option holder may exercise their stock options. A stock option contract between two consenting parties generally consists of 100 shares of an underlying stock. Put and call options are the two major types of options. In a call, a buyer enters into a contract to purchase a stock at a specific price by a specific date. In a put, the option buyer takes out a contract to sell a stock at an agreed-on price on or before a specific date.