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Understanding Dividend Dates

Understanding Dividend Dates

 Dividend dates can be very confusing.  A great many stock investors do not understand them at all and other investors are under the faulty influence of many popular misconceptions.  The following explanation will simplify the technical language of the rules that govern dividend dates and in the process clear up the popular misconceptions.  It will also provide links to several stock exchange Websites so readers can see the official technical language for themselves.

      For the sake of convenience, a list of definitions pertaining to dividend dates are provided in the column to the left of this text.

     Note: This explanation page is for publicly traded stocks and exchange-traded funds.  Mutual funds use different rules, the ex-date usually being the first business day after the record date.

      Contrary to popular belief, dividends and distributions are not the same thing. Generally speaking, a dividend is a payment of earnings to shareholders, while a distribution is the payment of stock, warrants, rights, or cash that is not from company earnings.  For example, the payment of a corporate liquidation is a distribution, not a dividend, because it represents the proceeds of the sale of the company, not corporate profits. However, because dividends and distributions are subject to the same date rules by the stock exchanges, for the purposes of this discussion, dividend  and distribution  shall be synonymous.

There are two categories of cash dividends recognized by the exchanges, the difference being the relative size of the distribution. Normal dividends are those that amount to less than 25% of a company’s stock price.  Normal dividends represent over 99% of all dividends paid, and as a result are the only ones most stock investors are familiar with.  Dividends of 25% or more of a company’s stock price represent a fraction of one percent of all dividends paid and are handled quite differently from normal dividends.

Understanding Dividend Dates

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