Dividends, Dates & Terminology: Things to Know

A dividend¹ is a cash distribution that is paid out from a company's earnings when a company chooses to transfer value to shareholders rather than reinvesting cash back into the business. Holding a dividend-paying stock can be a way of providing you with regular income (usually quarterly) while allowing for potential growth of your investment.

Here we cover some common terms around dividends and what they mean:

Declaration Date

This is the date that a company announces it is paying a dividend. A declaration statement is issued which includes details such as the size of dividend, the record date and the payment date.

Ex-Dividend Date (or Ex-Date)

In order to receive the next scheduled dividend, you must own the stock before this date.

If the stock is purchased on or after the ex-dividend date, the seller of the stock keeps the dividend.

Record Date (or Date of Record)

This is the date that you must be on the company's books as a shareholder of record to receive the dividend.

Payment Date

This is the scheduled date on which a company will pay a declared dividend to shareholders of record.

Hypothetical Example – Company ABC

On August 15, Company ABC declares a dividend payable on September 28 to its shareholders. Details stipulate that shareholders of record on the company's books on or before September 6 are entitled to the dividend. The stock would go ex-dividend one business day before the record date.

The table below puts it together with the key dates:

Dividend Yield

This is the percentage of return a company pays out annually in dividends relative to its share price. Not all companies pay a dividend, so the presence of a dividend yield on a stock quote screen can often be viewed positively - as only profitable companies tend to share their earnings.

A stock's dividend yield is calculated by taking its annual dividend-per-share and then dividing it by the stock's current price. The result is then expressed as a percentage.

The formula is: Dividend yield = annual dividend / stock price x 100

As an example, Company ABC pays an annual dividend of $1.44, and the stock is trading at a price of $53.00. Using the formula above, Company ABC's dividend yield is 2.7 per cent.

It's important to realize that a stock's dividend yield is not guaranteed. It can vary in response to market fluctuations and is paid only when a company chooses to.

Fast Fact about Performance

Dividends are one component of a stock's total return. The other is the change in the share price over a period of time. For example, if a stock's price increased 5 per cent in the year and it paid a 3 per cent dividend yield, your total return would be 8 per cent if you held the stock the entire year.

On the flip side, if you were holding a dividend-paying stock and the price declined 5 per cent in the year, you've still earned 3 per cent through dividends, so your total return would be negative 2 per cent.

If you're investing for the long term, it's worthwhile keeping the two parts of a stock's total return in mind. The simple equation is: Total return = Dividend yield + Price Change

Dividend Reinvestment Plan (DRIP)

A Dividend Reinvestment Plan automatically reinvests dividends into additional shares², which can be handy if you are receiving small amounts of cash. Look for 'DRIP eligible' under Quote Details on the Detailed Quote page .

Sellers and Ex-Dates

If you are selling a stock with a dividend reinvestment plan (DRIP) in place, the ex-dividend date is important to consider. If you intend to sell an entire holding of a stock but sell it on or after the ex-dividend date, you could end up holding a few residual shares you didn't count on.

To check out dividend information on your stocks, enter a stock name or symbol into the search feature at the top right of any screen on the site. Select a stock and you will be directed to the Detailed Quote page where you'll find dividend information such as frequency, yield, pay date and ex-dividend date listed.

Remember, a high dividend yield alone does not measure up to a great investment, so it may be prudent to dig a little deeper. If you'd like to learn more about dividends, including risk, types and some handy ratios, read Dividends: Types, Ratios & Risks.