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There are several dates you need to grasp to ensure you’re entitled to payouts
Thursday 08 Jun 2017 Author: Emily Perryman

Most investors are used to receiving dividends and/or reading dividend declarations in companies’ financial results. But you might be less familiar with the specific timescale that determines who qualifies for a dividend payment and when those payments will reach your bank account.

There are four key dates you need to be familiar with: the declaration date, the record date, the ex-dividend date and the payment date.

Having an understanding of these dates will help you establish if and when a dividend will be paid to you.

Declaration date

This is the date that the dividend is announced by the company’s board of directors. You will be able to see information about the size of the dividend, the date of record and the payment date. The company has a legal responsibility to pay the dividend once it has been declared.

Record date

This date is used to determine who is on the share register and therefore entitled to the dividend. The company sets the date of record after it has announced that it will pay a dividend. You must be a shareholder on this date in order to receive the dividend. Record dates are usually on a Friday.

Ex-dividend date

To ensure you are a shareholder by the record date you need to buy shares at least one day before the ex-dividend date. This is because the standard settlement for UK equities is two working days.

Take the example of Company ABC, which sets a record date of Friday 5 May. The ex-dividend date would be Thursday 4 May.

If you bought shares on Wednesday 3 May the trade would settle two days later on 5 May so you would be on the share register on the record date and would qualify for the dividend.

If you bought shares on Thursday 4 May this would not settle until Monday 8 May. ‘You would not be on the share register as at the record date and therefore would not qualify for the dividend,’ explains Neil Evans, head of middle office at financial services firm Killik.

If you want to sell a stock and still receive the dividend that has been declared, you need to sell on or after the ex-dividend date. If you sell earlier, you will lose your right to claim the dividend.

Because record dates are usually on a Friday, most ex-dividend dates in the UK are on a Thursday.

The timescale will vary if a company pays special dividends or if it is an overseas issuer which only has a secondary listing on the London Stock Exchange.

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Payment date

This is the date dividends will be paid to your ISA or dealing account. Evans says the length of time between the initial record date and payment date varies, but is typically between one and two months. The London Stock Exchange says companies should aim to pay dividends within 30 business days of the record date.

Companies will usually reveal details of the payment date on their website and in shareholder announcements.

You won’t have to wait long for dividends to be credited to your account. Investment platform AJ Bell Youinvest says that most dividends will be credited to investors on the stated payment date, especially if they are UK dividends.

Some international dividends may take a few days longer as the platform might need to convert the dividend income to sterling.

Withdrawals to a bank account

If you want your dividends to be paid from your ISA or dealing account into your registered bank account you can make this request to your platform. AJ Bell Youinvest says it usually takes between three and five days for the cash to appear in an investor’s bank account.

It’s not possible to bypass your ISA/dealing account and get dividends paid directly into your registered bank account.

You could consider setting up a regular withdrawal payment for the consolidated natural income (i.e. all income generated from your investments) to be paid from your ISA/dealing account into your bank account on a monthly, quarterly, half yearly or annual basis. This would remove the need to contact your platform every time a dividend is paid.

The reason for share price falls

If you monitor your stocks closely you might have noticed that the share price often falls on the ex-dividend date.

This is because the value of the forthcoming dividend is included within the share price up until the ex-dividend date. At this point, the current holder of the shares becomes entitled to the dividend, even if they then decide to sell the shares before the dividend payment date.

‘In effect the dividend itself becomes separated from the underlying shares, and that is why the share price often falls on this date,’ says Evans.

As an example, Company X has a share price of 100p and has announced a dividend of 5p. When the market opens for trading on the ex-dividend date, the share price will have been adjusted down to 95p.

On the ex-dividend date, the shareholders on record will become entitled to the 5p dividend. The shareholders would still be entitled to a total value of 100p (as they were before the ex-dividend date) but this would effectively be comprised of 95p per share and a 5p cash dividend per share.

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