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Kent Thune

Be Careful of December Dividend Dates Timing

By December 20, 2012

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Most investors do not pay attention to stock and mutual fund dividend dates but December is a time to be aware of the timing of buying or selling shares with regard to dividend payments.

Take a moment to review a brief explanation of dividend dates:

  • Declaration Date: A corporation's Board of Directors announces its approval of dividend payments.
  • Ex-Dividend Date: The day when it is too late to buy shares of a stock or mutual fund and receive the dividend.
  • Record Date:  The official day investors must be recorded as shareholders to receive the dividend.
  • Payment Date: The day dividends are actually paid or credited to shareholders' accounts.

What Dividend Dates Mean to Investors

Here's a translation: To receive the dividend, you must own shares at least three days prior to the record date.  This is because it takes three days for a stock trade to settle (and the investor thus becomes a shareholder of record).  It also explains why the ex-dividend date is two days prior to the record date--it's then too late to buy shares and be a shareholder of record by the record date.

Therefore, if you are rebalancing your portfolio or doing some year-end management, you may want to pay attention to dividend dates.  For example, if you plan to buy dividend-paying mutual funds for 2013 in your brokerage account, you may not want a December dividend to add to your 2012 taxable income.  Also, because a dividend is a decrease in assets for a corporation, it effectively reduces the share price.  Therefore bad timing could bring unwanted taxes and a reduction in share price.  With that said, none of the above should be a real concern for long-term investors seeking growth and investing in an IRA or 401(k) where taxes are deferred.

How to Find Dividend Dates

Most dividends are paid quarterly, such as March, June, September and December. A quick way to know when a particular stock or mutual fund will pay dividends is by a simple search on Ask.com, Google, Yahoo or any other of your favorite search engines. You can also go directly to the corporation or mutual fund family website.

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