On Sept. 7, I bought 100 shares of Telus, fully expecting that I would receive the 61-cent dividend payable on Oct. 1. However, when I checked my statement I did not receive the dividend. What gives?
The bad news is that you aren't going to receive that dividend, because you aren't entitled to it. The good news is that you can avoid this sort of frustration in the future by understanding four key dividend dates – the dividend declaration date, ex-dividend date, record date and payable date.
We'll use the Telus dividend as an example and explain what each of these terms means.
Referring to the table, you'll note that Aug. 3 was the declaration date. This was the date the company announced the dividend. Nothing complicated about that.
The pay date of Oct. 1 is also straightforward. This is the date the company actually pays the money to shareholders. (In my own experience, the dividend usually lands in my discount brokerage account one business day after the pay date.)
The ex-date and record are a bit more complicated, which is probably why you got tripped up.
When a company declares a dividend, it doesn't just start writing cheques immediately. Instead, it sets a date in the future, called the record date, which it uses to determine which shareholders are entitled to receive the dividend.
It's called a record date because you have to be a shareholder of record – that is, on the company's books – as of that date in order to get the dividend. In Telus's case, the record date was Sept. 10.
You bought your shares on Sept. 7 – three calendar days before the record date – so you probably thought you were entitled to receive the dividend.
Problem is, in order to be a shareholder on the record date, you need to purchase your shares at least three business days before the record date. That's because, when you place an order to buy a stock, it takes three business days for the trade to settle. In your case Sept. 8 and 9 didn't count, however, because they were on a weekend.
This leads us to the final important date – the ex-dividend date.
When a stock begins "trading ex-dividend," it means that, if you buy the stock on or after this date, you will not be entitled to receive the next dividend. In Telus's case, the stock started trading ex-dividend on Sept. 6.
Note that the ex-dividend date is two business days before the record date. Why two? Well, as we already mentioned, if you bought three business days (or earlier) before the record date, you would get the dividend. But if you bought two business days before the record date, you would be too late and you would not receive the dividend.
But here's the thing: Because investors who buy on or after the ex-dividend date don't get the next dividend, the stock often drops by an amount roughly equal to the dividend (all else being equal) on the ex-dividend date. Indeed, on Sept. 6, Telus fell 57 cents, which is close to the dividend amount of 61 cents.
So, although you missed out on the dividend, you got the stock for a lower price than you would have paid if you'd bought a day before the ex-dividend date. So don't beat yourself up too much.
You can avoid this sort of confusion in the future by consulting the ex-dividend and other key dates, which you can find on the investor relations section of the company's website.
KNOW YOUR DATES
Telus declaration: Aug. 3, 2012
Record date:Sept. 10