1.1.12.1 Cash Dividend

Corporations reward the investors by declaring cash dividends, which would normally be a small portion of the company’s earnings after interest payment and tax. Companies plow back the remaining portion of the earnings into its reserve, which can be re-used for funding the company’s growth in the future. The dividend declared as explained above is paid to the investors in cash.

When voting on the amount and form of a dividend, the Board of Directors provides two dates: record date and payment date. The record date is the point of reference for determining shareholder eligibility for the dividend. The pay date is typically a couple of weeks after the record date.

Three days before the record date and about three weeks before the pay date, the stock goes ex-dividend. Investors who purchase shares between the ex-dividend date (sometimes just called the ex-date) and the pay date are not entitled to the dividend. Instead, it is paid to the previous shareholder. When a stock goes ex-dividend, its price usually drops by the (after-tax) amount of the anticipated payment.