“Dividends declared” refers to the formal announcement by a company’s board of directors that a dividend will be paid to shareholders. The announcement includes the amount of the dividend to be paid per share, the record date, and the payment date.
The “record date” is the date by which an investor must be on the company’s books as a shareholder to receive the declared dividend. The “payment date” is the date on which the dividend will actually be distributed to the shareholders of record.
It’s important to note that a declaration of dividends creates a legal obligation for the company to pay the declared dividend. In other words, once a dividend is declared, the company is required to distribute the declared amount to its shareholders.
The amount declared for dividends is deducted from the company’s retained earnings, which are the accumulated net earnings of the company that have been retained for reinvestment in the business or to pay debt, rather than being paid out in dividends.
For example, if a company declares a dividend of $1 per share and there are 1,000,000 shares outstanding, it will need to pay out a total of $1,000,000 in dividends. This amount will be deducted from the company’s retained earnings in its balance sheet.
Example of Dividends Declared
Assume that the board of directors of Company C has declared a dividend of $0.50 per share. If you own 1000 shares of Company C, you would be eligible to receive a total dividend of $500 (which is $0.50 per share multiplied by 1000 shares).
Typically, the announcement of a declared dividend will look something like this:
The board of directors of Company C has declared a quarterly cash dividend of $0.50 per share payable on July 1, 2023, to shareholders of record at the close of business on June 15, 2023.
The key dates here are:
- Record Date (June 15, 2023): You need to be an official owner of the shares on this date to be eligible to receive the dividend. However, due to the way stock trades are settled, investors usually need to buy the shares at least two business days before the record date to be listed as the official owner on the record date.
- Payment Date (July 1, 2023): This is the date on which the dividend will be distributed to the shareholders of record. This is when you will receive the $500 dividend in your account (assuming you own 1000 shares).
Remember, the declaration of a dividend is a commitment by the company to pay that dividend. Once declared, the company has a legal obligation to pay it.