Investors who plan on living off dividends in retirement, should generally focus on companies paying regular, stable and rising distributions over time. This process requires analyzing stocks that fit a certain predetermined entry criteria, and keeping up to date on any developments.
One press release that makes my day every quarter is the one that discusses how a company’s Board of Directors has approved a quarterly dividend payment for shareholders. The most exciting press release is the one that discusses how a dividend increase has been approved. Understanding the dates mentioned in those press releases is essential for investors, as it will determine the timing of the distribution.
The four dates mentioned in a dividend press release include:
Dividend Declaration Date – This is the date on which dividends are declared by the board of directors.
Ex-Dividend Date – The Ex-dividend date is usually two days before the record date. This is the first day that the stock trades without the right to receive a dividend. On this day the price of the stock will be reduced by the amount of the dividend. The reduction comes from the price of the last trade in the previous session. If you purchase a stock on the ex-dividend date, you won’t receive a dividend until it is declared for the next time period. In order to be able to get the dividend, you will have to purchase the stock before the ex-dividend date.
Record Date - Shareholders who are not registered as of this date will not receive the dividend. Registration in most countries is essentially automatic for shares purchased before the ex-dividend date.
Payment Date – This is the date on which the dividends are deposited directly in your investment account or sent in the mail.
The most important date of all is the ex-dividend date. If you purchase a stock one day before the ex-dividend date and sell it on the ex-dividend date, you will be entitled to receive the dividends.
Technically, some dividend investors get excited at the fact that they could own a stock for one day per quarter, and still be eligible to receive the dividend. In a previous article I explained the dangers behind the dividend capture strategy.
Altria Group, Inc. (Altria) (NYSE: MO) today announced that its Board of Directors voted to increase Altria's regular quarterly dividend by 7.9% to $0.41 per common share versus the previous rate of $0.38 per common share. The new annualized dividend rate is $1.64 per common share. The quarterly dividend is payable on October 11, 2011 to shareholders of record as of September 15, 2011. The ex-dividend date is September 13, 2011.
Basically what this means is that investors who owned Altria (MO) stock at the close of business on September 12, 2011, were entitled to receive a dividend of 38 cents/share on October 11, 2011.
Other companies which are going ex-dividend over the next week include:
Target (TGT), for which the ex-dividend date is on November 14, while the pay date is on December 10. Yield: 2.30% (analysis)
Full Disclosure: Long MO, AFL, ED, CVX, UTX