Topic: Dividend Stocks

Learn when to buy dividend stocks to get the dividend payment—plus more on the advantages of dividends

September 25, 2024|by Scott Clayton

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Knowing when to buy dividend stocks to get the dividend involves understanding the declaration date, the payable date, and more

Do you know when to buy dividend stocks to get the dividend? When investing, we think you will profit more from focusing on companies that have maintained or raised their dividends during both recessions and stock market downturns. These firms have proven themselves able to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth.

Dividends are an important contributor to your long-term gains, and dividend-paying stocks tend to expose you to less risk than non-dividend-payers. That’s why the majority of your stocks should be dividend-payers. As you get older and closer to retirement, you should consider raising the proportion of dividend-paying stocks in your portfolio, to cut risk and improve the stability of your investment results.

A track record of dividend payments is a strong sign of reliability and a sound indication that investing in the stock will be profitable for you in the future.

If you’re new to investing, one tip we share often is to invest mostly in companies that have been paying a dividend for five or more years. Typically, these dividends are paid quarterly, although they may be paid annually or even monthly.

The Growing Power of Dividends Learn everything you need to know in '7 Winning Strategies for Dividend Investors' for FREE from The Successful Investor. The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Pay attention to these dates so you know when to buy dividend stocks to get the dividend payment

If you do not know when to buy dividend stocks to get the dividend, then take note of these four key stock dividend dates:

Declaration Date: Several weeks in advance of a dividend payment, a company’s board of directors sets the amount and timing of the proposed payment. The date of that announcement is known as the declaration date.

Payable Date: Is the date set by the board on which the dividend will actually be paid out to shareholders.

Record Date: Only shareholders who hold the stock before the payable date will receive the dividend payment. That date is known as the record date. It’s set any number of weeks before the payable date.

Ex-dividend Date: Two business days before the record date, the shares begin to trade without their dividend. This date is the ex-dividend date. If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That’s when a stock is said to trade “cum-dividend,” or “with dividend.” If you buy on the ex-dividend date or later, you won’t get the dividend. The ex-dividend date is in place to allow pending stock trades to settle.

Stocks paying dividends are great for income-seeking investors

Income stocks are stocks that produce above-average income, usually in the form of dividends.

Even if you don’t need current income from your portfolio, you still may want to invest in dividend stocks. When you pick the best dividend stocks, you are, for the most part, investing in safer and more secure companies. That’s in large part because of the dividends that the best income stocks pay. Dividends, after all, are much more stable than earnings projections.

You can identify income stocks by their high dividend yields (the percentage you get when you divide a company’s current yearly payment by its share price). For example, stocks with a dividend yield higher than, say, 3% would typically be attractive to an income-seeking investor.

Canadian investors benefit even more from the top dividend-paying stocks

Canadian stocks with dividends have the same advantages as dividend stocks in general:

• You can count on dividends to provide as much as one third of your total return.
• Dividends can grow even when stock prices do not. Top dividend stocks do their best to maintain their dividend payouts and increase them whenever possible.
• Dividends are a sign of investment quality. If you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks.

Furthermore, however, Canadian taxpayers who hold Canadian dividend stocks get a special bonus. Their dividends can be eligible for the dividend tax credit in Canada. This dividend tax credit will cut your effective tax rate. This means that dividend income will be taxed at a lower rate than the same amount of interest income.

Use our three-part Successful Investor approach when looking for dividend stocks

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

Some investors prefer investing in companies that do not pay dividends because of tax reasons. How do you feel about this?

How much value do dividend stocks bring to your portfolio? Or do you think they are overrated?