Unpaid Dividend What it is How it Works Example
Unpaid Dividend: What it is, How it Works, Example
What Is an Unpaid Dividend?
An unpaid dividend is a dividend due to be paid to shareholders but has not been distributed. Unpaid dividends exist due to timing differences between the record date and the payment date.
Key Takeaways
– Unpaid dividends exist because there is a difference between the company’s dividend announcement and payment.
– During this time, a company records unpaid dividends on its books, which are eliminated once the dividends are paid.
– Investors should understand the key dates in the dividend-payment process to avoid confusion about entitlement to a dividend payment.
How Unpaid Dividends Work
To understand unpaid dividends, review the four key dates in the dividend-payment process. The first is the declaration date, also known as the "announcement date". This is when the company’s board announces the upcoming dividend. Next is the ex-dividend date, when new stock buyers are ineligible for the dividend payment.
The record date, or "date of record", is the next important date. Shareholders must be recorded on the company’s books by this date to be entitled to the dividend. Typically, the record date is two days after the ex-dividend date. The payment date is when the dividend is paid to shareholders. It generally occurs about one week after the ex-dividend date.
Between the declaration date and the payment date, a company will have unpaid dividends on its books. Once the payments are made, the unpaid dividends will be zeroed out.
Example of an Unpaid Dividend
XYZ Corporation is a publicly-traded company with a price of $30 per share. Many investors see XYZ as a stable income-producing investment due to its consistent dividend payments. XYZ’s managers declare an upcoming dividend of $1.50 per share on July 30th. The record date is set as Thursday, August 8th, and the ex-dividend date is set for Tuesday, August 6th.
In this scenario, only shareholders who bought their shares on Monday, August 5th (or earlier) would receive a dividend. The payable date varies depending on the company’s preferences but is always the last of the four dates. Between the announcement date on July 30th and the payment date, XYZ will have unpaid dividends on their books, which will be eliminated once the dividends are paid to shareholders.
