The declaration date, in the context of stocks and dividends, is the date on which a company’s board of directors announces or “declares” its intention to pay a dividend. On this date, the board will also announce the size of the dividend, the record date, and the payment date.
Here’s a brief explanation of each of these dates:
- Declaration Date: The date on which a company’s board of directors announces its intention to pay a dividend.
- Record Date: Shareholders who own the stock on the record date are entitled to the declared dividend.
- Ex-Dividend Date: The date on or after which a security is traded without the right to the declared dividend. It is usually set one business day before the record date.
- Payment Date: The date on which the dividend will be paid to the shareholders of record.
The declaration date is important because it is the official announcement of the company’s intention to reward its shareholders with a portion of its earnings. It’s one of the key dates that investors watch closely when they invest in dividend-paying companies.
Example of the Declaration Date
Let’s take a hypothetical example:
Suppose the board of directors of ABC Corporation decides to pay a dividend to its shareholders. Here’s how the announcement might look:
- Declaration Date: On May 1, 2023, the board declares a dividend of $0.50 per share.
- Record Date: The board sets the record date as May 15, 2023. Only shareholders who own ABC Corporation’s stock at the close of business on this day will be eligible for the dividend.
- Ex-Dividend Date: This is typically set one business day before the record date, so in this case, it would be May 14, 2023. If you buy the stock on or after this date, you would not receive the dividend.
- Payment Date: Finally, the board announces that the dividend will be paid on June 1, 2023.
So, if you own shares in ABC Corporation on May 15, you would receive $0.50 per share on June 1. But if you buy the shares on May 14 or later, you would not receive this dividend. You would have to wait for the next dividend (if any) declared by the company.