Dividends might look simple, just cash paid to shareholders, but there's a clear timetable that determines who actually gets paid and how the market reacts.

It all begins with the declaration dates.

That's when the company's board of directors announces the dividend its size and when it will be paid.

At this stage, the board also specifies the record date saying something like the dividend will be paid to shareholders of record on Tuesday, September 10th.

The record date is there for the company's reference point for determining who will actually receive the dividend.

Once the record date is set, the X dividend date follows automatically from it based on the market's settlement convention.

The X dividend date is the first day the share trades without the right to that previous dividend.

If you buy the stock on or after the X diviv date, you won't receive the dividend.

The seller will because your purchase will settle after the record date.

Under a T plus two settlement system, the X dividends date falls one business day before the record dates.

Here's why. In a T plus two environment, the trade settles two business days after it is executed.

So if you bought the stock, even at the close two business days before the record dates, your name would appear on the shareholder register on the record date itself two days later.

But if you bought the stock just one business day before the record dates settlement would occur a day after the record date, meaning you'd miss the dividend.

In short, buying two days before gets you the dividend.

Buying one day before does not.

It's worth noting that in 2024, the US moved to t plus one settlement.

As a result, the record dates and X dividend dates now usually coincide because if you buy on the business day before the record dates, your trade settles the next day and you'll appear as a shareholder on the record date.

Finally, we reach the payment date when the dividend is actually transferred to the shareholders of record.

Let's walk through an example.

Suppose a company announces its dividend on Monday, August 12th, stating that it will be paid to shareholders of record on Tuesday, September the 10th with actual payments to follow on Friday, September 20th.

Under T plus two settlements, the X dividend date would fall on Monday, September 9th, because buying on that day or later means your trade settles after the record date and the dividend entitlement would remain with the seller.

Under T plus one, the record and X dividend dates would simply coincide on that Tuesday, September the 10th.

Now, what happens to the share price on the X dividend date? All else being equal, the share price typically drops by roughly the amount of the dividend.

That's because the company's cash decreases and so does its equity value reflected directly in the stock price.

You can see that clearly in the chance where the price steps down on the XIV date before returning to normal trading patterns.

And understanding this timeline isn't just about mechanics.

It also matters for how investors and traders interpret the market.

Knowing dividend dates and dividend amounts is particularly important for two main groups of market participants.

Income investors who depend on dividends for regular returns and derivative traders since expected dividends, influence the forward price of equities and futures contracts.