All About the Dividends: Stockpick Whiz Kid

Max Levin, MainStreet's Stockpick Whiz Kid, runs, an online forum where the average person can post and comment about different investments and stocks.

NEW YORK (MainStreet)—Dividends are an added bonus to any investor's portfolio, because of the high volatility they creates and the funding they provides. After a dividend is announced, the share price of the stock usually rockets up due to the potential dividend the investors could inherit. But when the ex-dividend date hits, the stock price usually declines.

Dividends, quite simply, are funds allocated to investors or shareholders by a security due to a specific profit margin reached by the company. Not all securities provide a dividend. Unlike quarterly earnings reports and other data where there is a set released date each quarter, there is no specific date that a company releases its dividends.

When investing in stocks that possess dividends, there are three objectives that you should keep in mind. The ex-dividend date (the date you must contain the stock), the pay date (the date you receive the funding), and the date of record (two days after the ex-dividend date).

Many investors trade when dividends are released to gather the dividend payment. To do this, the investor has to buy the stock or security one day before the ex-dividend date. Let's say that an ex-dividend date is planned on a Friday. If you purchased the security on a Thursday, you would receive the stock and the dividend on the date of record which would be on the following Tuesday. Even though you didn't contain the stock before the ex-dividend date, you will still receive the dividend. The latest you could have bought the security would have been Thursday, and by the following Tuesday's "date of record," all investors and shareholders are eligible to receive the dividend. Anytime after the ex-dividend date, you can sell the stock and still receive the dividend.