dividens

Dividends

Distribution of a company’s profit to its shareholders

Cash dividend

• Normally distributed by check or automatically deposited into a brokerage account.

• Paid quarterly

• Taxed in the year they are distributed.

Stock dividends

• The company issues additional shares of his common stock to his current stock holders instead of cash

• The shareholder now owns more shares after the distribution.

• The stock is not taxable, but the adjusted cost per share will impact any capital gains when the shares are sold.

Dividend from stock means

Cash dividend

Product dividend

Companies will pay a dividend by sending a sample of the companies’s product to shareholders.

Dividends are taxed as

Qualified dividends and non-qualified.

Qualify dividend

If certain requirements are meant are tax at a lower rate than an investors marginal tax rate

Non-qualified dividend

Tax of the investors, ordinary, income tax rate

Process of distributing cash dividends (DERP)

• Declaration date

• Ex dividend date

• Record date

• Payable date

Declaration date

• Established by the companies board .

• When a company approves a dividend payment.

Ex-dividend date

• Same as the record date

• set by a regulator(FINRA, exchange)

• to receive the dividend, the stock must be purchased before the ex dividend date.

• If the stock is purchased on or after the ex-date, the new owner will not receive difference

Record date

• The stockholder of record (those who own the stock) as of the end of the day on the record date receive the dividend distribution

• Established by the company’s board.

• Same as the ex-date

Payable date

• The dividend disbursing agent sent dividend checks to all stock holders whose name appear in the record as owner of the record date.

BigBox Stores, Inc., declared a $1 per share dividend on Tuesday, August 7. The dividend will be paid to holders of record of BigBox common stock as of Thursday, August 30, and will be delivered to shareholders on Wednesday, September 5. What is the record date for this dividend?

The decision to pay a dividend rests with

Board of directors

Is the decision to pay a dividend guaranteed?

No

When it does occur, the amount can decrease, increase, or remain unchanged from the previous dividend.

BigBox Stores, Inc., declared a $1 per share dividend on Tuesday, September 13. The dividend will be paid to holders of record of BigBox common stock as of Tuesday, September 27, and will be paid Wednesday, October 12. What is the payable date for this dividend?

Wednesday, October 12

ABC Corporation's board of directors declared a $0.25 per share dividend on Wednesday, June 15. The dividend will be paid to shareholders of record on Tuesday, July 5. The dividend will be sent to shareholders on Tuesday, July 26. What is the last day to purchase the stock and receive the dividend, assuming a regular way settlement?

This is a good example of a difficult question that requires you to slow down and think it through. The ex-date for a corporation will be the same day as the record date. The record date is July 5. The last day to purchase the stock and receive the dividend is the business day before the ex-date. The day before July 5 is July 4, which is a holiday and not a business day. The days before that are Sunday and Saturday. The first business day before the ex-date is Friday, July 1. The last day to purchase the stock and qualify for the dividend is the last business day before the ex-date (July 1). The only holidays we have heard of appearing on the exam are July 4 and December 25.

In a 20% stock dividend, what happens to the number of shares and the share price?

The share price goes down, and the number of shares goes up.

Which of the following describes the consequences of a stock split?

If the number of shares goes down, the price goes up.

If the number of shares goes up, the price goes down.

The rule on a stock split is that the total value of the stock must be the same before and after the split. Hence, if the number of shares goes up or down, the price per share must go down or up, respectively.