Consider these 9 things before investing in mutual funds!

As we enter the new fiscal or financial year tomorrow most listed Indian companies would come out with their annual results for fiscal 2020-21 over the next two months. Along with financial results, these companies will also declare dividends to their shareholders.

What is a Dividend?
A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to its shareholders. Dividends can be issued as cash payments. A company’s net profits can be allocated to shareholders via a dividend. Larger, established companies tend to issue regular dividends as they seek to maximize shareholder wealth in ways aside from supernormal growth.

To receive dividends, it’s very important for an individual to be holding the stock when the company is recording the name of the shareholder before the distribution of dividends. Hence, it is important for you to monitor the dates mentioned in the press release issued by the company. The company announces how much dividends they will give to the shareholders and the dates when the stockholders will receive their dividends.

Now it is very crucial for investors to understand the dates mentioned in the corporate announcement as it decides the timing of trading of these dividend stocks. Read on to understand the dividend dates.

There are four key dates to keep in mind when holding a dividend-paying stock:

Dividend Declaration Date:

This is the date on which a company announces the dividends for the stockholders. The press release includes the date of dividend distribution, size of the dividend, record date and payment date.

Record Date:

The record date is the date on which your name should be present on the company’s list of shareholders i.e. record book, to get the dividend. Shareholders who are not registered as of this date on the company’s record book will not receive the dividend.

Ex-Dividend Date:

After the company sets the record date, the ex-dividend date is set by the stock exchange. The Ex-dividend date is generally two days prior to the record date. In order to receive dividends, you need to purchase the stock before the ex-dividend date. If you buy the stock on or after the Ex-dividend date, then you won’t get the dividend, instead, the previous seller will get the dividend.

This is primarily due to the T+2 settlement cycle is followed by Indian stock markets. This means that it takes two days for a trade life cycle to be completed from initiation to settlement.

Payment Date:

This is the date set by the company, on which the dividends deposited are paid to the stockholders. Only those stockholders who bought the stock before the Ex-dividend date are entitled to get the dividend.

Now, let us look at an example so that you get a good knowledge of the above dividend dates explained.

BPCL Press Release:

Board Meeting held on 16th March 2021, the Board of Directors has declared 2nd Interim Dividend of Rs.5/- per equity share of face value Rs.10/- each for the Financial Year 2020-21. Further, the Board of Directors have fixed Saturday, 27th March 2021 as the Record Date to determine the eligibility of the shareholders to receive the said Interim Dividend.
It may kindly be noted that the above Interim Dividend will be paid or the warrants in respect thereof would be posted on or before 12th April 2021. The entire press release can be read here.

In the above release, the company announced three important points.

Dividend of Rs 5 per share.

Record date of March 27, 2021

Payment date on or before April 12, 2021

The Ex-dividend date, in this case, was March 25, 2021, i.e. investors who bought the stock BPCL before 25th March were entitled to receive the dividend.