Stock Ratios and Returns
Dividends -When a company realizes profits, the board may vote to distribute dividends.
Cash Dividends -Cash dividends are the most common paid in regular intervals.
Stock Dividends -The board may also decide to distribute more shares of stock as a dividend. This is distributed in equal percentage.
Settlement Date -A settlement date is used to determine who is entitled to a specific dividend.
Regular Way Settlement - A transaction that settles regular way will settle on the 3 rd business day following the date of the trade. This is how most common stocks transactions are settled. U.S. Notes and bonds settle next business day and money market securities settle same day.
Dividend Disbursement
Declaration Date -When a dividend payment is approved by the board, they must notify the NASD 10 days prior to the record date, which is selected by the corporation.
Ex-Dividend Date -This is 2 days prior to the record date. We established earlier that regular way settlement takes 3 business days from the date of the trade. So, the investor that bought the stock before the ex-date would receive the dividend, while the investor who bought on the ex-date would not receive the dividend.
Record Date -The date that determines who is the owner of the stock for purposes of dividend disbursement.
Payable Date -The date the dividend is paid to the stock holder of record.
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Let's say the record date is the 9 th . If the trade date is on the 2 nd , then the trade will settle on Monday the 7 th . Since the 7 th is before the record date, this investor would be entitled to the dividend.
Stock Splits
A stock split increases the number of shares and reduces the market price proportionately. This is a forward split. This is often done when the board of directors feel the price is too high for investors.
Example: A 3 for 2 stock split means that for every 2 shares of stock held by the investor, he/she will now have 3. Here is an easy way to calculate this:
Left Right
100 shares |
At $60 |
3 for |
2 split |
• To figure the new shares-Multiply the numbers on the left side (100x3) and then divide it by the numbers on the right bottom quadrant (2). So, 100x3/2=150 shares is what the investor will have after the split.
• To figure the new price-multiply the numbers on the right side (60x2) then divide it by the number on the left bottom quadrant (3). So, 60x2/3=$40 per share will be the new price after the split.
Note that the market value does not change in a split of this nature (100 shares x $60=$6,000 and 150 shares x $40=$6,000) however, the investor now has more shares (150 compared to 100).
Reverse Stock Split - would have the opposite effect, however, you can use the same formula above to calculate it.
