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Shareholders’ Equity Analysis
- Are the stockholders really
owners?
- Do you know where your
equity dollars are?
- How comprehensive income
can affect stock values
- Watch out for your dividends
- Stock splits, dividends
and reverse splits
- Spin-offs, tracking stocks
and determining new cost
basis
- Stock rights give board of
directors more power then
they are entitled to
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Watch out for your dividends
I knew an investor who transferred her no-load mutual
fund to her brokerage account, at a very reputable firm, so that all her
investments would be on one statement. After a few years, she noticed that
the balance of that particular fund never grew, while the fund was always
listed in the newspapers as one of the better performers in its group. To
keep the story short, the brokerage house was not posting the annual stock
dividends of that fund to her account. When she discovered it, the firm
researched it and immediately made her whole. Mistakes sometimes happen and
can be easily rectified, but it’s important for investors to personally
review their monthly statements. I hope this example brings home the
importance of reviewing your statements.
Most investors, especially those with many stocks,
don’t focus on specific stock dividends until they do their taxes. While
most individuals are astute as to annual dividend amounts, many may not be
aware of the implications of all the various dividend dates. This may cause
them to innocently lose money, by trading shares and not realizing when the
next ex-dividend date is.
Even experienced investors sell stocks immediately
before the ex-dividend date, thereby losing the dividend. In effect, they
are giving the dividend away to the buyer. In reality, the dividend may or
may not be built into the stock price.
Most brokerage statements show when a dividend was
received, and what the anticipated income and yield will be on the shares
held. Most statements don’t show ex-dividend dates, nor do many annual
reports or company web sites. One needs to read the actual press releases
issued by the company. The Value Line Investment Survey shows dividend
information in fine print on the very bottom of each page. Some stock sheets
disclose an “X” by the particular stock’s volume figures, if the stock is
trading ex-dividend. Yahoo does a very nice job of reporting dividend
payment dates and ex-dividend dates under their key statistics section.
Additionally, certain stock price/volume charts show a very small tick mark
on the bottom date axis, which represents ex-dividend dates.
The important cash dividend dates are listed below:
Declaration date – The date the dividend is
authorized by the board of directors and announced in a press release,
usually over the business wire. The company notifies the exchanges, as well
as the transfer agent (paying agent) and depository trust company (“DTC”),
of the declaration date, record date, payment date and amount.
Date of record – The date on which the
investors must be shareholders to qualify for the dividend. Keep in mind
that the brokerage firms need three days to settle the trade. To qualify as
a shareholder on the record date, one must purchase the stock at least three
days before the record date. The record date is also the cut-off date for
determination of rights to receive proxy materials, annual reports and the
like.
Ex-dividend date – The date that the new
investors are not eligible for the dividend. The prior owner of the stock,
who owned the stock immediately prior to the ex-dividend date, receives the
dividend. If one purchases a stock on or after the ex-dividend date, they
will not receive the cut-off dividend. The stock exchange sets the
ex-dividend date usually two business days prior to the record date.
Dividend payment date – The date the investors
are paid. The company wires the total dividend payment, beforehand, to the
transfer agent, who then disburses the dividends to the individual
shareholders of record, as well as to the DTC. The DTC then forwards the
dividend to the brokerage firms who hold the investors’ shares in street
name. The brokerage firms then credit the individuals’ accounts.
On the
website of Duke Energy under “Investors – Shareholder Return,” they present
a simple but excellent chart, listing all the important dates and amounts of
their dividends. Hopefully, the ongoing accounting reform will make this
type of disclosure a requirement for all companies.
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