How and When Are Stock Dividends Paid Out?

If a guests has excess earnings and decides to pay a dividend to common shareholders, an amount is declared along with a payable date. For the most part, this is determined quarterly after a company finalizes its income statement and the board of directors meets to review the financials.

Dividends are in the main paid in the form of a dividend check, but they may also be paid in additional shares of stock. The standard practice for payment of dividends is a confirmation that is usually mailed to stockholders a few days after the ex-dividend date, the date on which the stock starts clientele without the previously declared dividend.

The alternative method of paying dividends is in the form of additional shares of stock. This practising is known as dividend reinvestment and is commonly offered as a dividend payment option by individual companies and mutual funds. Dividends are taxable return regardless of the form in which they are paid.

Dividend reinvestment plans, known as DRIPs, offer a number of utilities to investors. If the investor prefers to simply add to his or her current equity holdings with any additional funds from dividend payments, self-governing dividend reinvestment simplifies this process as opposed to receiving the dividend payment in cash and then using the liquidate to purchase additional shares. Company-operated DRIPs are usually commission-free since they bypass using a broker. This column is particularly appealing to small investors since commission fees are proportionately larger for smaller purchases of stock.

Another embryonic benefit of dividend reinvestment plans is that some companies offer stockholders the option to purchase additional pay outs in cash at a discount. With a discount from 1-10%, plus the added benefit of not paying commission fees, investors can buy additional stock holdings at an advantageous price over investors who purchase shares in cash through a brokerage anchored.

If a dividend is declared, shareholders are notified via press release, and the information is by reported through major stock quoting services for easy reference. At the time of declaration, a record date is set, content all shareholders on record on that date are entitled to the dividend payment. The day following the record date is called the ex-date or lover the stock begins trading ex-dividend. This means that a buyer on ex-date is purchasing shares that are not licensed to receive the most recent dividend payment. The payable date follows usually about one month after the record date.

On the punch-line date, the company deposits the funds for disbursement to shareholders with the Depository Trust Company (DTC). Cash payments are then disbursed by the DTC to brokerage firms round the world where shareholders hold the company’s shares. The recipient firms appropriately apply cash dividends to shopper accounts or process reinvestment transactions as per a client’s instructions.

Tax implications for the dividend payments vary depending on the type of dividend proclaimed, account type where the shareholder owns the shares, and how long the shareholder has owned the shares. Dividend payments are summarized for each tax year on Shape 1099-DIV for tax purposes.