1.3.4 - Cash Dividends

What is a cash dividend?

Corporate earnings / profits that are distributed to stockholders.

Is a company required to pay dividends?

No. Dividends are not guaranteed.

Why do smaller, growing companies usually not pay dividends?

They retain earnings to reinvest and grow the business.

Why are cash dividends attractive to investors?

They provide income without selling shares.

Who is especially likely to seek dividend-paying stocks?

Income-focused investors (e.g., retirees).

Board of Directors (BOD) Authority

Who decides whether a dividend is paid?

The Board of Directors (BOD).

What three dividend dates are determined by the BOD?

• Declaration date

• Record date

• Payable date

Dividend Dates (Exam Material)

Declaration Date

What is the declaration date?

The date the BOD officially announces the dividend.

Record Date

What is the record date?

The date an investor must be a settled owner to receive the dividend.

What must occur by the record date to receive the dividend?

The trade must settle on or before the record date.

What is regular-way settlement for stocks?

T+1 (trade date + one business day).

Ex-Dividend Date

What is the ex-dividend date?

The first day the stock trades without the dividend.

If you buy stock on the ex-date (regular way), do you receive the dividend?

No.

If you sell stock on the ex-date, do you keep the dividend?

Yes.

For regular-way settlement, when is the ex-dividend date?

The same day as the record date.

Why is the ex-date tied to settlement?

Because you must be a settled owner by the record date.

Quick Memory Trick ⭐

Replace “ex” with “without.”
Ex-dividend = trades without the dividend.

Cash Settlement Exception

What is cash settlement?

Same-day settlement.

For cash settlement trades, when is the ex-dividend date?

The business day AFTER the record date.

If you buy using cash settlement on the record date, do you receive the dividend?

Yes. (because you settle same day).

Payable Date

What is the payable date?

The date the dividend is actually paid.

What is the correct order of dividend dates?

Declaration → Ex-date → Record → Payable

What acronym helps REMEMBER the order? ⭐

DERP

• D – Declaration

• E – Ex-date

• R – Record

• P – Payable

Who Controls What?

Who controls declaration, record, and payable dates?

The Board of Directors.

Who determines the ex-dividend date?

NYSE (for exchange trades) or FINRA (for OTC trades).

What is FINRA?

A self-regulatory organization (SRO) that regulates finance professionals and markets.

Stock Split Ex-Date (Separate Rule!)

When is the ex-date for a stock split?

The day AFTER the payable date.

Why is the stock split ex-date different from cash dividends?

Because the split must actually occur before shares trade in their new form.