What Is Declaring a Dividend?

Companies often pay out a portion of their profits as dividends to the shareholders. Dividend payouts are a way to provide shareholders with a return on their investment. The board of directors issues a declaration stating how much will be paid out and over what timeframe. This declaration implies liability for the dividend payments. The 澳洲幸运5官方开奖结果体彩网:declaration date is the first of foꦆur ♛important dates in the dividend payout process.

How Declaring a Dividend Works

Before a 澳洲幸运5官方开奖结果体彩网:cash dividend is declared and subsequently paid to shareholders, a company's board of directors 💟must decide to pay the dividend and in what amount. The board must agree on the cash amount to be paid to the shareholders, both individually and in the aggre𝓰gate. The board must also set a record date to determine which stockholders are entitled to receive the dividend, decide on the payment date, and notify the stockholders.

When the board of directors makes such a decision and declares a dividend for payment to stockholders, the 澳洲幸运5官方开奖结果体彩网:retained earnings account on the company's balance sheet is reduced by the amount of the declared dividend. The retained earnings is an account of equity that shows the net balance of a company's earnings. Since the retained earnings account is an equity account, dividend payments must be deducted from the account, reflecting the reduction in total shareholder equity.

The debit to the retained earnings account is balanced by a credit to the dividends payable liability account. The same process applies to declarations of dividend payments for either 澳洲幸运5官方开奖结果体彩网:preferred or common stock.

Key Dividend Dates

There are 𒁏four key dates involved in the dividend process, of which the declaration date ꦰis the first.

1. The 澳洲幸运5官方开奖结果体彩网:declaration date is also referred to as the announcement date since a company notifies shareholders and the rest of the market. The declaration date is the date on which a company officially commits to the payment of a dividend.
2. The 澳洲幸运5官方开奖结果体彩网:ex-dividend date, or ex-date, is the date on which a stock begins trading without the dividend. To receive the declared dividend, shareholders must own the stock prior to the ex-dividend date.
3. The 澳洲幸运5官方开奖结果体彩网:record date usually occurs three business days after the ex-dividend date and is the date on which a company officially determines the shareholders of record, those who owned the stock prior to the ex-dividend date, who are eligible to receive the dividend payment.
4. The 澳洲幸运5官方开奖结果体彩网:payment date is the date the company sends out dividend payments to shareholders. The payment date is usually about one month after the record date.

The Bottom Line

When a company wants to return some of its earnings to shareholders, the board of directors will announce a dividend date sometime in the future. Anyone who owns the stock on that date will qualify to receive a portion of that dividend. Stock prices typically increase leading up to the ex-date as prospective investors seek a share of the dividend.