One of the most frequent questions that investors ask when they begin to purchase stocks is this; in order to receive the dividend payment, when do I have to buy?
In truth, the answer is a bit complicated. The company whose stock you purchase won’t tell you the day when their dividend is announced and publishers like TheStreet.com, Bloomberg and Yahoo finance don’t publish them either.
There is something called a “must-own date” however, that was coined about 10 years ago by David Peltier, and it’s basically the simple answer to the question of when to purchase stock if you want to get the dividends.
Determining the Must-own Date
One thing to keep in mind is that, when most dividends are announced, a certain date is given by the company selling them as a day when dividends are “payable to shareholders of record”. This date, while useful, is not the date for the cutoff to receive dividends.
The difference is that, in reality, the stock trades settle 3 days after this date, and the ex-date is 2 trading days before the record date. What that means is that the must-own date is actually the day before any stock becomes ex-dividend.
So, in order to find the must-own date, you simply need to subtract 3 days from the record date.
If a company announces, for example, that they will pay dividends on Friday, 6 February, 2015, we can then determine that then ex-date will be on Wednesday, the 4th and the must-own date will thus be Tuesday the 3rd.
Keep in mind that only those investors who own the stock at the close of trading on the 3rd will actually receive any dividends. If, for example, you owned a stock for five years but you sell it on the must-own date, you won’t receive any dividends. Conversely, if you buy a stock with five minutes to spare on the day of trading, Tuesday the 3rd, you will receive the full dividend for the stock.
Using that logic, an investor could technically purchase stocks just before the close of the market on the 3rd and then turn around and sell them on the 4th and still receive their dividend.
It’s slightly confusing no matter what level of investor you happen today, but dividends are a very important part of investing, especially for long-term growth. Knowing how to determine when dividends are paid will definitely pay off for you in the long run.