The basis for dividend growth income investing is to choose good company stocks with a history of paying increasing dividends. This creates a reliable stream of passive income for the investor.
Before retirement, the income stream is reinvested in current portfolio stocks or pays for new stock additions.
After retirement the dividend income will supplement Social Security, pension, and other income.
Investors in dividend stocks pay attention to four dividend-related dates. We’ll look at each date and use the latest T. Rowe Price Group dividends as example.
The first date is the Declaration Date. This is the day a company Board of Directors announces a stock dividend.
They issue a declaration statement that includes the amount of the dividend, the date of record and the date of payment. After the declaration statement, the company is legally obligated to pay the dividend.
Once the company sets the date of record, the Ex-dividend Date is set by either the stock exchange or National Association of Securities Dealers.
Investors buying the stock on or after the ex-dividend date will not receive the dividend payment. Those owning the stock before the ex-dividend date receive the dividend.
The third date is the Date of Record and is the date only owners of the stock listed on the company books receive the dividend payment. The company identifies these “holders of record” and uses this information to send financial reports, proxy statements and other information.
The Payment Date is the real day when you’ll receive the dividend payment. On this day,dividend payment is settled into your brokerage account and either automatically reinvested in more shares of that particular company stock or swept into your cash holding account.
Let’s use T. Rowe Price (TROW), an asset management company listed on the New York Stock Exchange, as an example of the above dates.
On February 17, 2016 the Board of Directors of T. Rowe Price announced a dividend payment of $0.54 per share (Declaration Date) paid to investors owning the stock on or before March 14, 2016 (Ex-Date).
A stockholder of record on March 16, 2016 (Date of Record) received the cash payment on March 30, 2016 (Payment Date).
Understanding these four dates is important for tracking dividend income and dividend increases. They also play a role as to when to buy a stock that has passed due diligence benchmarks. Paying attention to these dates is part of the total dividend growth income experience.