Reading: Payout Basics

On October 12, 2017, Ford Motor Company made the following dividend announcement:

This announcement allows us to take a look at the typical timeline of dividend payments: There are four dates that are relevant in the context of dividend payments (in particular in the case of publicly traded firms):

• Dividend declaration date: On this date, the board of directors announces the payment of a dividend for a specific business period (a quarter, semester, or year). With this announcement, the shareholders (and the market in general) learns about the firm's payout intentions. If these intentions deviate from the market's expectations, the declaration date is the date on which the market is most likely to react. 
   
  In the case of Ford, the declaration date was October 12, 2017, and the announcement was that the firm will maintain a quarterly dividend of $0.15 per share for the fourth quarter of 2017.
   
• The second important date is the Ex-date or Ex-dividend date:  On (or after) this date, the security trades without the announced dividend. That is, investors who buy the share on (or after) this date will not receive the declared dividend. Therefore, the stock price will generally drop on the ex-date by the (after tax) amount of dividend.
   
  Ford does not include the ex-date in its dividend announcement. According to Morningstar, the ex-date for the dividend in question was October 20, 2017 (a Friday). From that day onwards, new investors were no longer entitled to receiving the dividend of the fourth quarter of 2017. As a result, the stock traded approximately $0.15 lower than the day before.
    
• Date of record: It takes some time to process the identity of all the shareholders who buy and sell shares. On the date of record, which is usually 1-3 business days after the ex-date, the company closes its stock transfer books. All investors who are listed as shareholders at the close of the date of record will receive the dividend.
   
  Ford's date of record was October 23, 2017, which was the Monday following the ex-date on the previous week's Friday.
  
  
• Date of payment (payable date): Finally, the payment date is when the company mails out the dividend checks to the shareholder of record. This date is generally a week or more after the date of record.
   
  Ford paid the dividend on December 1, 2017, which is more than 4 weeks after the record date.

The following graph summarizes the typical timeline for dividend payments: