When investing in dividend stocks, there are five important dates dividend investors need to be aware of. Here they are in the general order in which they occur:
1. Trade date -- As the name implies, the trade date refers to the day you actually buy shares of stock. However, most investors don't realize that you don't technically take ownership of the shares immediately.
2. Settlement date -- This is the day your purchase becomes finalized and you become an official shareholder of record on the company's books. Think of the settlement date like the closing date on a real estate sale. If you agree to purchase a house at a certain price, you can't simply move in right away; you need to wait until the purchase is finalized some time later.
For stocks, the settlement date is three business days after the trade date. For example, if you buy a stock on Monday, your trade will settle on Thursday. This is the date that determines whether or not you will receive a dividend payment on your shares.
3. Ex-dividend date -- The first trading day a stock trades without its dividend. If you buy shares (trade date) before the ex-dividend date, you are entitled to the dividend. On the other hand, if you buy your shares on or after the ex-dividend date, you will not receive a dividend.
For sellers, as long as you sell your shares on or after the ex-dividend date, you are still entitled to the dividend -- even if you no longer own the stock when the dividend is paid.
4. Date of record -- From the company's standpoint, the date of record is the date that determines who gets the dividend and who doesn't. In order to receive the dividend, your purchase must settle on or before the date of record. For stocks, the date of record is two business days after the ex-dividend date.
5. Payment date -- The day when the dividend is actually paid to shareholders. This can be considerably later than the other dates mentioned, and has no bearing on who receives a dividend. In other words, you'll still receive a payment on this date if you were a shareholder of record on the date of record, regardless of whether or not you sell your shares before the payment date.