Companies, particularly those listed on stock markets, will often pay dividends to their shareholders. It’s a reward to the shareholders for lending the company money by buying its shares, and the fact the company can afford to pay some of its profits to its shareholders is a sign that it’s in good financial health and confident about its own future. The steady income provided by dividends can persuade an investor to buy a stock.
Companies can pay several dividends a year. Prior to each dividend payment date, the company will set a record date — the date on which a shareholder must be recorded as such and therefore be eligible to receive the dividend payment. Once the record date has been set, than the ex-dividend date is set. It is typically a couple of days before the record date, but the exact timing depends on the rules of the stock market on which the company’s stock is listed. It becomes a marker date for investors. When buying stock, it normally takes about three days for the purchase to be settled and recorded and therefore investors know they must buy stock before the ex-dividend date if they are to get the next dividend payment by that company.
