Declaration, ex-dividend, record and payment dates

Every dividend comes with four dates, shown on the timeline at the top of the page. ETFs pass on their holdings’ dividends with the same calendar; see what is an ETF.

  1. Declaration date: the board of directors announces the dividend, its amount per share and the other dates. Hypothetical: $0.50 per share.
  2. Ex-dividend date (ex-date): the first day the stock trades without the right to this dividend. Buy on or after it and you will not receive it.
  3. Record date: the day the company checks its register of shareholders. Those on record are paid.
  4. Payment date: the cash reaches shareholders’ brokerage accounts, often a few weeks after the record date.

When do you need to buy a stock to get the dividend?

Since May 28, 2024, a US stock trade settles one business day after it is made (T+1), and you appear on the company’s register only once your trade settles. A purchase on the business day before the record date settles on the record date, just in time. Under the old two-day settlement the ex-date came one business day before the record date; since the move to T+1, the ex-date and record date are normally the same business day.

In practice: buy by the close of the last trading day before the ex-date. You can sell on the ex-date itself and still be paid. Hypothetical: if the ex-date and record date fall on a Thursday, buying on Wednesday qualifies; buying on Thursday does not. Note for Gulf readers: in Saudi Exchange announcements, the Arabic term for the entitlement day usually means the day you must own the shares at the close, the equivalent of the last day to buy here, not the ex-date.

There is an exception: for unusually large special dividends, worth 25% or more of the share price, the ex-date is set after the payment date instead. Always check the dates the company or your broker publishes.

Why does the stock price drop on the ex-dividend date?

On the ex-date the company is about to pay out cash, so each share is worth that much less, and the price usually opens lower by roughly the dividend. Hypothetical: a stock closes at $50.00 the day before the ex-date and pays $0.50; all else equal, it opens around $49.50. During the day the market moves as usual, so the drop is often hidden in other moves.

That is why buying just before the ex-date to capture the dividend is not free money: you receive $0.50 in cash, but your shares are worth about $0.50 less, and tax withheld on the dividend can leave you behind. A dividend is part of your total return, not an extra on top. If you sell covered calls, a dividend can also make early assignment more likely just before the ex-date.

Turn your phone sideways to read the drawing. Tap to close.

Hand-drawn daily candles closing near $50.00 under a dashed prior-close line, then an ex-date candle opening about $0.50 lower; beside it, two bars on a broken axis starting at $45: a $50.00 share before equals a $49.50 share plus $0.50 of cash after, with the note: value about the same.

Dividend yield and payout ratio

Dividend yield is the yearly dividend divided by the share price. Hypothetical: a $50 stock that pays $0.50 a quarter pays $2.00 a year, a 4% yield. The yield moves with the price: if the price falls to $25 and the dividend stays at $2.00, the yield doubles to 8%. A very high yield can be a sign the market doubts the dividend will last, not a bargain.

Payout ratio is the share of profit paid out as dividends: dividends per share divided by earnings per share. If the same company earns $5.00 a share and pays $2.00, its payout ratio is 40%, and it keeps 60% to reinvest or pay down debt. Above 100%, it pays out more than it earns, which cannot last unless profits recover; many investors also check the dividend against free cash flow.

No company is obliged to pay. The board can cut or suspend a dividend at any time, often when profits fall.

Turn your phone sideways to read the drawing. Tap to close.

Two hand-drawn panels: on the left, dividend yield as $2.00 ÷ $50 = 4%, then $2.00 ÷ $25 = 8% after the price falls, with the warning: price halves, yield doubles, ask why; on the right, an EPS $5.00 bar split into $2.00 paid out (40%) and $3.00 kept (60%), with $2.00 ÷ $5.00 = 40% highlighted.

Dividend tax for non-US investors

The US taxes dividends paid to foreign investors at the source: 30% by default, withheld before the cash reaches you. A tax treaty between the US and your country can lower that rate, which your broker applies once you file Form W-8BEN. Saudi Arabia, for example, has no income tax treaty with the US, so Saudi residents usually have the full 30% withheld. Your own country may tax dividends too.

Hypothetical: 100 shares × $0.50 = $50 of dividends; at 30%, $15 is withheld and $35 reaches your account. Our guide on how to buy US stocks covers the W-8BEN form. Rules change, so confirm your rate with your broker or a tax adviser. If you follow Islamic screening, see halal stock investing on purifying dividend income.

Dividends vs buybacks

A company can also return cash by buying back its own shares. A dividend puts cash in every shareholder’s account. A buyback reduces the number of shares, so each remaining share owns a bigger slice of the company and its profits; you turn that into cash only if you sell.

Hypothetical: a company with 10 million shares spends $50 million. As a dividend, that is $5 a share. As a buyback at $50 a share, it retires 1 million shares, and each of the remaining 9 million owns about 11% more of the company. Buybacks also lift earnings per share without any growth in profit, worth knowing when you read results.

Neither is better in itself. A buyback pays out no dividend, so there is nothing to withhold tax on, but a buyback at an inflated price can destroy value. Growth vs value stocks shows which kinds of companies tend to pay dividends.

Turn your phone sideways to read the drawing. Tap to close.

Two hand-drawn panels: on the left, a dividend, where a company pie of 10 slices sends coins to a shareholder and keeps the same number of shares; on the right, a buyback, where one slice of a 10-slice pie is crossed out and the next pie has 9 bigger slices, so your shaded slice grows from 1/10 to 1/9.