Updated on July 30th, 2019 by Bob Ciura
Income investors can help simplify the stock selection process by focusing on high-quality dividend stocks. This task is made much easier by a compilation of various stock lists such as the Dividend Aristocrats and Dividend Kings.
The requirements to be a Dividend Aristocrat are:
- Be in the S&P 500
- Have 25+ consecutive years of dividend increases
- Meet certain minimum size & liquidity requirements
There are currently 57 Dividend Aristocrats. You can download an Excel spreadsheet of all 57 (with metrics that matter) by clicking the link below:
Investing in dividend stocks might seem to be a simple proposition, but there are many different terms investors should be familiar with when it comes to dividend stocks.
Specifically, the various dividend terms relate to the timing in which dividends are paid. The four dates involved in the dividend payment process that investors should know are the declaration date, ex-dividend date, record date, and payment date.
Investors should become familiar with all four terms before buying a dividend stock, as being able to identify these dates will help avoid any potential confusion.
This article will discuss each term in detail, and use two examples to show how these dates can be easily found for specific companies.
Table of Contents
Dividend Declaration Date
The declaration date is the date on which the company’s Board of Directors announces the next dividend payment to shareholders. It is simply an announcement – no dividends are paid on the declaration date.
Generally, dividends are paid quarterly, so declaration dates are quarterly as well.
While dividends are in no way guaranteed, it is generally a goal of company management to grow their dividend payments over time. This is a shareholder-friendly activity that is seen as a sign of underlying business strength, and is certainly discussed in great detail at Board of Directors meetings.
Record Date Versus Ex-Dividend Date
The record date and the ex-dividend date determine which shareholders are eligible to receive company dividends.
If shares trade hands in the time leading up to a dividend payment, these two dates determine whether it is the buyer or the seller who receives the dividend.
The record date is the date on which company management looks at their shareholder records to see who is eligible to receive the company’s future dividend payment. However, this date is of little importance to investors. Buying the company’s stock on the record date does not mean that you will receive the company’s next dividend.
Practically speaking, the most important date for dividend investors to be aware of is the ex-dividend date. This date, which is two days before the record date, has much greater implications for portfolio management.
Investors who purchase shares on or after the ex-dividend date will not be paid that quarter’s dividend (although they will be entitled to future dividends, assuming they still hold the shares). Investors who purchase shares before the ex-dividend date will be paid that quarter’s dividend.
The reason why the ex-dividend date is two days earlier than the record date is because it takes three days for a trade to ‘settle’ – for cash and shares to legally trade hands.
This seems counterintuitive. Anyone who has placed trades before knows that cash is deposited to your account on the day that you sell shares. Often, this is simply because your broker is willing to front you the money in advance while they wait to receive money from the counterparty. The actual process takes three days to complete.
The Payment Date
The payment date is the date on which corporate cash is actually paid to shareholder as a dividend. Depending on the medium through which you own your shares, dividends may be mailed to you as a check, wired into your bank account, or deposited into your brokerage account as cash.
Many companies also offer a Dividend ReInvestment Plan (or a DRIP, for short). These plans allow investors to use dividends to purchase more company shares.
You can view the 15 best DRIP stocks here (each of the stocks in that article charge no fees for their DRIPs), or alternatively, watch them covered in the video below.
Two Real-Life Examples of the Dividend Payment Process
Suppose an investor is looking to initiate a position in high-quality dividend growth stock AbbVie Inc. (ABBV), which is one of our top-ranked dividend stocks and a member of the Dividend Aristocrats.
An investor purchasing the stock today would likely want to make sure he or she is eligible for the company’s next quarterly dividend payment. As such, investors need to purchase before the company’s ex-dividend date.
The easiest way to find this date is by looking directly on the company’s Investor Relations page, which can be easily found via a Google search.
AbbVie’s Investor Relations site reveals that the company’s next ex-dividend date is in mid October. This can be seen in a related press release from June 20th in which the company announced its next quarterly dividend payout.
Or, investors can see AbbVie’s dividend history in the Stock Information portion of its Investor Relations page. There, investors will find that AbbVie has declared three dividend payouts so far this year, the next of which will be paid on August 15th, 2019 to shareholders of record on July 15th.
Source: AbbVie Investor Relations
Applying the same methodology yields identical results for industrial giant 3M Company (MMM), which has an even longer dividend history than AbbVie. 3M has paid dividends for over a century, and has increased its dividend each year for the past 60 years in a row. 3M is a Dividend Aristocrat, and a Dividend King as well.
First, search for 3M’s dividend information on Google. While the company’s Investor Relations page might not be the first result, it is still on the first page of the search engine and thus very easy to find.
Once there, scrolling down leads to a table that is similar to AbbVie’s Investor Relations page.
Source: 3M Investor Relations
In contrast to AbbVie, 3M has declared only two dividends so far in 2019, with two more to come. Its most recent dividend payment was made on June 12th, to investors that held the stock before May 23rd. It is likely that 3M will announce its third quarterly dividend payout of the year over the next two or three weeks.
These two examples show precisely how easy it is to find information on record dates, ex-dividend dates, and pay dates for corporate dividends.
As investors, there are many other more important issues that we should be concerned with, instead of simply the timing that a specific company uses to pay its dividends.
On a company’s ex-dividend date, shares generally drop by an amount approximately equal to the company’s next dividend payment.
Investors wanting to ‘lock in’ the gain of that dividend, but who do not purchase before the ex-dividend date can still purchase shares on the ex-dividend date at a discount approximately equal to the dividend amount.
Because of this, there is no advantage to waiting to purchase shares.
Instead, focus on developing a long-term systematic investing plan that will be successful regardless of your timing of dividend payments.
Additionally, make sure a company’s dividend is sustainable for the long run. This requires a company to have durable competitive advantages, a steadily profitable business model even during recessions, and a positive growth outlook.
If you find a company that ranks favorably according to a proven system such as the Sure Analysis Research Database, buy some shares and focus on holding the stock over the long-term.