January 21, 2022

Dividend Dates

It is often confusing when companies announce large dividends. You will see hype around a certain dividend and think “I can buy the share and get the dividend”. Be careful of this thinking. The markets are forward-looking. The share price that you pay, will include the dividend amount. Subsequently, on ex-dividend date the share price will drop by the dividend amount. I will explain this with an illustration for Anglo American below.

 

Five dates are important when it pertains to dividend declarations:

 

  1. Declaration Date/Cum-dividend date

As the English word suggests, this is the day the dividend is declared and announced to the market. Finance scholars will often use the Latin word cum-dividend. Cum means “including”. The share price will increase by the dividend amount per share from this day. So, if you buy the share on cum-dividend day, you pay for the dividend. You are not in the same position as someone who bought the stock a week ago. If the dividend is 10%, you are paying 10% higher. The current shareholder took a chance on the company before they knew about the dividend. You are jumping on and attempting to “Buy the Dividend” It does not work like that in the stock market.

 

  1. Last Day to Trade/Register (LDT/LDR)

The name gives it away again. This is the last day to trade in the shares to qualify for the dividend. If you own the share at 5pm on LDT date, you will qualify for the dividend. You must own it at market close.

 

  1. Ex-dividend Date

This is the first day the share starts trading excluding the dividend. The share price will drop by the dividend amount per share at the market open on the ex-dividend date. This is always the very next business day after LDT. Do not be shocked when you see the share price drop on this. The dividends were allocated to the qualifying shareholders the previous day, so the share price will drop the dividend amount from the share price.

 

  1. Record date

Investors are not affected by this date. This is the date that the company is required to update its records of which shareholders qualify, as per 5 pm on LDT. It is for the company, not the investors.

 

  1. Payment Date

This is the day when the dividend is paid and the company issues dividend payments.

 

Example

You will see an announcement like the one below. You must own the share at market close on 18 August to receive payment on 24 August.