What Is A Declaration Date?
There are several types of Dividend Dates, one of which is the Declaration Date. It is that date on which the directorial board of a firm declares the next payout of the dividend. This announcement is about the size of the declared dividend, payment date, and ex-dividend date. Another term that is used for declaration dates is announcement dates.
The declaration date is not only the date on which the next dividend payout is announced, but it is also the last day when a stock option holder should declare if they will use the stock option. Another term for it is the expiration date.
How Does a Declaration Date Work?
Suppose one owns 120 shares of a firm ABC. By the end of the quarter, firm ABC computes its economical performance. The directorial board then studies the data, also including the firm’s revenue margin, and announces it through a press release. The cost of a dividend per share falls around $0.10 for the quarter, payable to record shareholders.
Important Declaration Dates
As mentioned above, the declaration date is a type of dividend date, and it is counted as an important one among all the other dates. The declaration date is important when a firm’s directorial board announces a dividend payout. Other important dates are:
1. Record Date
The date on which a firm checks its records to identify its shareholders of record. The shareholders with a specific stock in the record date are deemed to get the company’s dividend payout.
2. Ex-Dividend Date
Once the record date is identified, the NASD, National Association of Securities Dealers, or the stock exchanges give the ex-dividend date. If an investor purchases stock before the ex-dividend date, then that investor will get the dividend payout. And if the investor buys the stock after or on the ex-dividend date, then the investor isn’t eligible to get the dividend. The firm’s share price generally comes down to represent the amount of dividend payout on the ex-dividend date.
Declaration Dates And Options
Both the terms, stock options, and declaration date, are co-related to each other. How so? These two terms are related as declaration date is the on which the stock option holder can put their options in use.
A stock option deal between 2 parties in the agreement is typically made up of 100 shares of an underlying stock.
The 2 significant forms of stock options are put and call options. A call is a contract entered into by a purchaser to buy a stock at a stated amount by a particular timeline. In the second type of stock option, the put option, the stock option purchaser agrees to trade a stock at a predetermined rate before or on a certain date.
Example Of Declaration Date Process
Now let’s understand the Declaration Date via an example:
Suppose on the 10th of March 2020, a firm XYZ declares to its shareholders that the dividend payout will be given on the 12th of April 2020. The firm XYZ later confirms that all its shareholders issued on the firm’s books before 25th March 2020 are entitled to the dividend payout. So, now here the dividend dates for the firm would be as follows:
- Declaration date: 10th of March 2020
- Payment date: 12th of April 2020
- Record date: 25th of March 2020
- Ex-dividend date: 23rd of March 2020
If a purchaser sells his stock before 23rd March 2020, then they won’t remain eligible to get the dividend payout on 12th April 2020. But if they give out their stock on 30th March 2020, they will stay entitled to get the dividend payout on 12th April 2020.
There are many important dividend dates, and the Declaration Date is also one of them. We hope that by now it must be clear to you what is a declaration date, and what is its significance.
Other than the declaration date, there are several other important dates like the record date, payment date, and ex-dividend date.
A declaration date is a form of dividend date on which the next date for the distribution of dividends is declared. It is also the last date when an option holder should announce if the option would be used or not.