A Beginner's Guide to Understanding the Declaration Date
The declaration date is relevant to market participants in equities and options. It impacts investors and traders alike, but what is the date of declaration?
Our guide to understanding the declaration date will explain its meaning, cover the four aspects of it, and discuss why the declaration date matters.
Ignoring or being unaware of the declaration date could result in lost profits and unexplained price action moves in the underlying asset. Make sure you understand the declaration date meaning and know how to implement it in your investing and trading strategies with the help of our guide.
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What is a Declaration Date?
The declaration date is when the board of directors declares the next dividend payment. The company publishes a press release confirming the payment date, the size of the dividend, the ex-dividend date, and the payment date.
Since the declaration date dividend announcement must have the board of directors’ approval, the declaration date coincides with board meetings. Most companies either pay a quarterly dividend, like US-listed companies, or a semi-annual one, where the half-year payout is smaller than the full-year dividend, typical for UK-listed companies. EU-listed companies and other developed markets may use a combination of both, which depends on the board of directors.
The four components of a dividend declared date are:
- The declaration date
- The ex-dividend date
- The record date
- The payment date
Here is an overview of each date and why it matters:
1. The declaration date
The declaration date is when the board of directors announces the dividend payment. It is also available in the press release, which publicly listed companies publish, accessible on their corporate website, usually under the investor relations sections under news or press releases.
It also includes the proposed dividend size, the ex-dividend date, the record date, and the payment date. Investors and traders must note all three dates announced on the declaration date to ensure they get their dividend payment.
For example, the board of directors of Company ABC announced a $0.50 per share dividend on August 14th,2022. It is payable to all shareholders on December 19th, 2022, of record on November 11th, 2022. The ex-dividend date is November 9th, 2022.
Therefore:
- The declaration date is August 22nd, 2022 (sometimes referred to as the stock declaration date)
- The ex-dividend date is November 9th, 2022
- The record date is November 11th, 2022
- The payment date is December 19th, 2022
- The dividend is $0.50 per share, meaning an investor holding 10,000 shares by the record date will receive a $5,000 cash payment.
2. The ex-dividend date
The ex-dividend date is the first trading day the issuing company trades without the dividend, which automatically adjusts price action. The company cannot set the ex-dividend date, which the exchange determines. It is usually one to three trading days before the record date since assets settle with a T+1, T+2, or T+3 delay.
What is a T+1, T+2, or T+3 delay?
Most equities require two trading days (T+2) to settle. It means an investor who buys shares in Company ABC on Monday will receive ownership on Wednesday, when the investor is on the record with Company ABC as a shareholder. Government securities mostly settle with a delay of one trading day (T+1), and some assets could have a three-day (T+3) clearing and settlement period.
In our example, the ex-dividend is two trading days before the record date, suggesting a T+2 delay.
3. The record date
The record date is when shareholders must be on the company record to receive the dividend. It remains vital to consider the T+1, T+2, or T+3 delay.
In our example, the record date is November 11th, 2022, with a T+2 delay, while the ex-dividend date is November 9th, 2022.
Therefore:
- A market participant buying Company ABC on November 10th, 2022, would not qualify for a dividend, as the T+2 delay will register with the issuing company on November 14th, 2022, considering the weekend.
- A purchase on November 8th, 2022, will qualify for the dividend.
4. The payment date
The payment date is when the issuing company pays shareholders the announced dividend. It usually occurs electronically; investors get the amount credited to their cash balance where they hold the shares.
Brokers, who often are the custodians of shares on behalf of clients, will credit accounts on the payment date. Traders, even those who do not own the underlying assets, get the portfolio adjustment on the ex-dividend date, as price action shows an impact due to the price adjustment matching the dividend payment, which occurs on the first trade in the ex-dividend date.
Why Does the Declaration Date Matter to Market Participants?
The declaration date matters to market participants as it includes vital information for the next dividend payment. It either results in a credit or debit from the portfolio cash balance. A dividend payment also impacts price action, which traders must consider.
Investors in the company recorded as shareholders by the record date will receive a credit after the payment date, depending on how many shares they have.
Traders with long positions will get a credit on the ex-dividend date, while short positions receive a debit, as price action on the ex-dividend date will drop by the dividend amount once markets open.
For example, if company ABC announces a $0.50 dividend and trades at $24.25, the following quote results in a level of $23.75, considering the dividend. Otherwise, short sellers would have guaranteed profits, and buyers would always face an automatic loss.
When is the Declaration Date?
The declaration date is when the board of directors announces the next dividend payment. Publicly listed companies also release a press release on the same day, informing the public of their dividend declaration.
What is the declaration date for dividend analysis?
Analysts and market historians may conduct a declaration date for dividend analysis to gain insights into how the company performed from the declaration date, which initiates a multi-month process until shareholders receive their dividends. It can assist in declaration date stocks investing and portfolio construction.
How can Investors and Traders Find the Declaration Date in Financial Statements?
Publicly listed companies must file quarterly or semi-annual financial statements and annual reports with their regulators. Each financial document will have a dedicated section covering dividends, where investors and traders can locate the declaration date dividend information.
The declaration of dividend payments will result in an adjustment to the balance sheet, included with each financial statement, where the company notes the cash debit covering the dividend payment amount.
What Type of Companies Announce a Declaration Date?
Publicly listed companies announce a dividend declaration date, while private companies can distribute dividends but do so without internal circulations rather than public announcements. Theoretically, any company with shareholders and sufficient cash can distribute dividends.
The Importance of Knowing the Declaration Date
Investors who manage dividend income portfolios must know the declaration date to ensure they become recorded shareholders at the company paying the dividend by the specified record date. They must plan and consider the T+1, T+2, or T+3 delay. Otherwise, they could miss out on receiving the dividend.
Traders must know the declaration date and accompanying dates, as their trading accounts will receive an adjustment to their cash balance, a credit for long positions, and a debit for short positions. Most traders avoid holding trades during ex-dividend dates, which impacts price action.
Declaration Date Conclusion
Dividend-paying companies announce the size of their next dividend, the ex-dividend date, the record date, and the payment date on the declaration date. The declaration date coincides with annual board meetings since the board of directors must approve any dividend payment. Investors and traders must know all the necessary dividend payment details announced on the declaration day, as they will result in a credit or debit to the portfolio and impact price action.
FAQs
Where can you find the declaration date?
Companies release a press release, accessible on their corporate website, usually under the investor relations section. Financial statements filed with respective regulators also include the declaration date. Many websites that track dividends maintain details of the stock declaration date.
What happens after the declaration date?
After the declaration date, market participants will know the dividend size, the ex-dividend date, the record date, and the payment date of the announced dividend.
What types of documents have a declaration date?
Corporate press releases and financial statements have the declaration date.
When is a declaration date important?
The declaration date matters to investors and traders as it impacts price action and results in cash credits or debits to accounts, which requires knowing the ex-dividend date, the record date, and the payment date.
When is the declaration date not important?
Individuals without investment or trading portfolios do not need to know the declaration date, as they are neither eligible to receive a dividend nor exposed to price action and balance adjustments after the ex-dividend date.
What is the declaration date vs the record date?
The declaration date is the day a dividend is announced. The record date is the date that the dividend formally takes effect.
What is the date of the declaration of liability?
The date of the declaration of liability is when a company records its liability to pay a dividend.
Who sets the declaration date?
A company’s board of directors sets the declaration date.
Does a date of declaration require a journal entry?
Yes, a date of declaration requires a journal entry.
What does declared mean in accounting?
A declaration in accounting is when a company formally declares that part of its earnings will be paid to shareholders as dividends.