4 dates every Dividend Investor must understand

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1)Dividend Announcement date:

This is the date when the company declares how much dividend it’s going to pay, the record date and when the dividend gets deposited into your account (Pay date).

2)Ex-Dividend date:

This is the most important date to understand. If you buy a stock on the ex-dividend date, it’s too late to receive the dividend for that quarter. You must purchase the day BEFORE the ex-dividend date to get that quarter or months dividend. For instance, if the ex-dividend date is Aug 2nd, then only people who bought on or before Aug 1st get the dividend. If you buy on August 2nd or anytime afterward, you aren’t eligible for that quarter’s dividend.

I hate to admit this, but before I knew what I was doing I once bought a stock on the ex-dividend date thinking I was eligible for the dividend! Don’t make this mistake, if you want the dividend you must buy BEFORE the ex-dividend date.

Now to discuss why you may not want to wait and buy right before ex-dividend either:

The ex-dividend date comes with tax implications, at least if shares are held outside an IRA. A dividend is called a QUALIFIED DIVIDEND when shares are held for over 60 days inside a cycle of 121 days. This cycle is made up of the following:

60 days before the ex-dividend date and 60 days after the ex-dividend date.

If you hold the shares 59 days or less inside this cycle, the dividend is taxed as ORDINARY INCOME. In other words, taxed at your normal tax rate. If your normal tax bracket is 15% then you pay 15% taxes on ordinary income dividends.

The higher your tax bracket, the greater of importance these nuances are. I have some great news for those in lower income brackets-As of today, single filers with an income below $38,600 and joint filers with an income below $77,200 pay 0% taxes on QUALIFIED DIVIDENDS. Only those making 425K a year or more pay the 20% tax on QUALIFIED DIVIDENDS. This is why it’s so important to make sure your dividends meet the QUALIFIED status.

Do your best to hold shares for at least 60 days inside this cycle. Less taxes means more return.

An exception to these rules are REITs; they’re are always taxed as ORDINARY INCOME (A good reason to hold inside an IRA account!). I put all REIT’s in my retirement account to avoid the added taxes.

Another scenario to clarify the ex-dividend date:  One could hold the company through the ex-dividend and sell on that date (August 2nd) and still get the dividend. Since you held before ex-dividend, you are recorded as an owner of shares in the company, even though you sold the next day! I realize this sounds complicated. At the same time, it doesn’t have to be.

Most investors need not concern themselves with these scenarios, I’m presenting to hopefully bring a clear picture of the dividend. I do think everyone needs to understand the tax implications of the ex-dividend date before investing.

3)Date of Record

The date of record is when the list of shareholders who qualify for the dividend is made. This date is typically two days after the ex-dividend.

4)Pay Date:

Our favorite day, payday! This is the day you’ll see your dividend deposited into your account. Even though everything is automatic and computerized in today’s world, it’s a good idea to make sure you got your dividend.

I’ll close by saying it’s not a bad idea to have a calendar where you enter important dates for each stock, REIT or fund you own. I personally mark pay dates and ex-dividend dates in my calendar. As your portfolio grows to over ten stocks you will need a system of organization.

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