Dividend Payment Procedures
The dividend payment procedures refer to decisions and operating guidelines for executing the dividend decisions. The procedures of dividend payment of a corporate firm can be outlined as follows:
Dividend Payment Procedures includes:
- Declaration date
- Date of Record
- Ex-dividend date
- Payment date
# Declaration date
The board of directors of the company announces that a specified amount of dividend will be paid to the stockholders. It is paid to the stockholders who are on the company’s record on the specified future date. The date on which directors meet and announce the dividend is called declaration date. Generally, the dividend is announced as a percentage on the par value of the stock. However, in some cases, it can be the absolute amount as Rs. 20 dividend per share.
# Date of Record
Along with the dividend announcement, the board of directors also specifies a date of record. For example, if the board of directors meets on July 10, 2014, and declares a 10 percent cash dividend to the stockholders of record on September 15; the July 10 is called declaration date and the September 15 is called the date of record. The company prepares a list of stockholders from the stock transfer book at the close of business on the date of the record. All the stockholders whose name appear on the stockholders register on the record date are entitled to receive the dividend as declared by the board. The new stockholders would receive the dividend only if their names are recorded in the stockholders register on or before the date of record, otherwise, the old owner of the stock would receive the dividend.
# Ex-dividend date
The ex-dividend date is the first date on which a stock purchaser is no longer entitled to the recently declared dividend.
In normal practices, the buyer and seller of the stocks have two business days to settle the transactions prior to the date of the record. For example, if the date of the record is September 15, the transaction must take place before September 13 to entitle the new holder to receive the dividend. Thus, the date when the right to the dividend leaves the stock for new owners is called ex-dividend date. In our example, if stock is bought on or after September 13, the new stockholder is not entitled to receive the dividend. As a result of this, we normally expect the stock price to decline exactly by the amount of dividend per share on the ex-dividend date.
# Payment date
The date on which the company actually pays the declared dividend.
At the time of the dividend announcement, the board of directors also specifies the date on which the payment of the dividend is actually made. This is called a payment date. On this date, the company actually pays the dividend to all the stockholders of the date of record.