Portfolio income is one of the truest forms of passive income. Whether the cash stems from bond interest, capital gains distributions, or stock dividends, it doesn’t take a lot of work to receive.
You don’t have to clock in anywhere.
You don’t have to make sales calls.
If you want, you don’t even have to leave your house.
This is the allure of passive income as a whole.
Of course, you still have to own the underlying asset which kicks off the income to receive the income. In actuality, it takes a substantial portfolio of investment assets in order to reasonably live off of your dividends.
That being said, there are plenty of benefits to portfolio income. While you are still in the accumulation phase, you can reinvest portfolio income to continue to accumulate assets within your investments. This process works to further accelerate your wealth creation.
Portfolio income can also serve as a buffer against extreme market volatility, as the money still counts toward the total return of your portfolio.
As it relates to stock dividends specifically, there are a few key dates to understand in order to make sure you receive the payouts due from the positions you own.
Those dates include:
This article will detail each of these dates on the dividend calendar so you can understand both the mechanics and the timing behind dividend payouts.
Before we continue, ALL. wants to remind you that this article is educational in nature. Any securities or firms named are for illustrative purposes only and do not constitute financial advice. Always do your due diligence and consider your situation – and the help of a licensed financial professional – when making investment decisions.
If you don’t yet have industry professionals handling your portfolio, we can help! Check out Financial Professional’s investment marketplace, where we partner with some of the best in the business to help find the right investment for you.
The Declaration Date is the calendar date on which the Board of the Director publicly announces what the next dividend per share payout will be.
The Board of Directors of a firm decides on the payout of dividends to shareholders. However, shareholders must still give their approval, as a dividend technically classifies as a return of capital back to the shareholders.
Most companies pay out dividends quarterly, but there are firms that pay monthly. In these instances, these companies will have monthly declaration, ex-dividend, record, and payment dates.
Investors closely monitor declaration dates, as the information is public and can contain essential tidbits on dividend hikes or slashes. Just because a company pays out X dividend amount one quarter does not mean it will pay X amount the next.
The ex-dividend date, also known as the ex-date, is crucial to understand. This date on the dividend calendar dictates the first date of dividend ineligibility.
In simple terms, if you want to receive the dividend payout that was announced on the declaration date, you must be a share owner at least one trading day before the ex-dividend date.
Note how we mentioned the trading day, not calendar day. This is especially important when dealing with market holidays.
For example, let’s say that the ex-dividend date of XYZ stock falls on Tuesday, January 13, 2021. However, Monday the 12th is a market holiday. In this scenario, you must purchase shares of XYZ by close of day on Friday, January 9, 2021, otherwise you will not be entitled to the next dividend payout. Instead, the funds would go to the investor who traded the stock to you because they owned the share one trading day prior to the ex-dividend date.
It’s very common to see prices drop by the amount of the dividend payout per share to make up for the fact that the stock is being traded ex-dividend. If you purchase shares on that date thinking that you’re buying the stock at a discount, keep in mind that you’re actually just forgoing the next dividend payout.
The record date is equally as important as the ex-dividend date.
To be eligible to receive the next dividend payout, you must show up as a shareholder on the company’s books on the record date. But how do you make sure you’re a shareholder of record by the record date?
Again, you must own the shares at least one trading day prior to the ex-dividend date. Typically, this date is set one business day after the ex-dividend date.
For example, let’s say that you want to make sure you receive the next payout of stock ZYX’s dividend. If the ex-date falls on Monday, February 1 2021, then Tuesday, February 2 is likely going to be the record date.
XYZ will check its books on the 2nd to see if you are a shareholder of record. How do you ensure you are a shareholder of record? You purchase the shares by close of day on Friday, January 29.
The payment date is the date on which the company actually releases the funds to the shareholder’s accounts.
This date is usually set out about a month from the record date. If you were a shareholder on the record date, you will be entitled to a dividend on the payment date.
Depending on your broker, actual receipt of the funds may take anywhere from 1-3 business days.
Furthermore, based on how you elect to manage your dividends, the funds will either be reinvested back into the position the paid out the dividend or sit as cash in your account(s).
Luckily, in today’s world, there are plenty of free resources that can tell you when a company’s stock dividend dates fall.
In fact, many websites dedicate resources to answering that question. Here are a couple of favorites that you can check out:
All you have to do is enter the symbol the company of interest to find their key dividend payout dates. Alternatively, you can search by date to see which companies pay out dividends within a certain time frame.
While receiving a dividend is not the only reason you should own stock in a company, it certainly helps to have dividend-paying companies and funds in your portfolio. Maintaining a diverse array of investments is all part of a solid total return strategy.
As an investor, it’s important to be aware of all key dates pertaining to the payout of dividends. This will help you plan properly from a portfolio income perspective.
These are the key dates in a nutshell. The more you become with the dividend calendar, the more comfortable you will be with the mechanics surrounding dividends.
Have questions on the the key dividend dates or dividends in general? Let us know!