Dividend basics explained

Don't know your ex-date from your record date? Read on.

Ex-date, record date, books closing date, payable date - there are enough dates associated with a dividend to fill up a calendar. So this issue, for those new to the world of investing, we're going to explain each one.

Luckily for us, there are only two dates that really count for investors; the ex-date and payable date (or payment date as it's sometimes known). If these terms were all you knew about dividend dates, you could still live a happy and prosperous life.

From a company's point of view, on the other hand, all that really matters are the books closing date (also known as record date) and the payable date. But we're getting ahead of ourselves.

Books close
When a company declares a dividend, in addition to the amount per share, it also declares a books closing date (which, as we've noted, can also be called the record date). This means that all shareholders who are on the company's share register at that date will receive the dividend.

But in order to be on the share register at that date, investors need to have bought the shares at least three business days earlier. It's all to do with what's known as T+3 settlement. Now, that's not a reference to an Arnold Schwarzenegger film, or political campaign. When investors buy shares through their broker, the moment the trade is executed the investor is the economic owner of the stock and gains, or loses, from movements in its price.

But the actual day the trade is settled - when money is exchanged and the stock transferred from seller to buyer - doesn't occur until three business days after the trade is executed.

To read more of this article regarding dividends, visit The Intelligent Investor at www.intelligentinvestor.com.au.