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investor clinic

I recently lost a substantial dividend and I am trying to avoid the same mistake again. I purchased shares of Crescent Point Energy on May 28 and the news release from the company said that "shareholders of record on May 31" would be entitled to receive the dividend on June 16. However, I did not receive it. What did I do wrong?

Let me reassure you that you didn't "lose" anything. To understand why, you need to familiarize yourself with four key dividend dates. These dates can be confusing, especially when weekends or holidays come into play, so today I'll walk you through them.

The first date you need to know is an easy one: the declaration date. This is the date when the company announces the dividend. In Crescent Point's case, the dividend was announced on May 15.

A second date that's very straightforward is the payment date. This is the date on which the company actually sends out the cash, either to shareholders directly or to their brokerage firms. At my own discount broker, dividends often don't land in my account until one day after the payment date.

In between the declaration and payment dates, there are two other key dates to know: the ex-dividend date and the record date. These are the dates that sometimes mess with shareholders' heads.

Let's deal with the record date first. This is the date that you have to officially own the shares in order to receive the dividend. But be careful: If you buy the stock on the record date, you'll be too late. That's because it takes three business days for a trade to settle – that is, for the cash and shares to actually change hands. So, to be entitled to the next dividend, you would have to buy your shares at least three business days before the record date (and the record date itself would also have to be a business day).

What happens if you buy the stock two business days before the record date, you ask? Well, you would not be entitled to the next dividend. That's why this date is called the ex-dividend date – "ex" meaning without.

When you buy a stock on the ex-dividend date, it might seem as if you're losing out, but you aren't. Here's why: The price of the shares – all else being equal – will adjust to reflect the fact that investors who buy on this date (or later) won't receive the payment. In effect, you get to buy the shares at a discount as compensation for not receiving the next dividend.

In a similar vein, buying the stock the day before the ex-dividend date doesn't make you any better off; you get the dividend, but the stock will cost you more than if you'd waited until the next day – again, all else being equal.

Now, it's important to understand that when a stock goes ex-dividend its price doesn't necessarily fall by the exact value of the dividend. In fact, the stock could even rise, because prices are subject to all sorts of forces on any given day. Crescent Point's monthly dividend is 23 cents, but on the ex-dividend date the stock fell by 41 cents.

Now to the question of why you didn't receive the dividend. At first glance, it seems as if you should have. After all, you placed your order on May 28, three days before the record date of May 31.

But if you check the calendar, you'll see that May 31 was a Saturday – a non-business day. As a result, the trade you placed on May 28, a Wednesday, didn't settle until three business days later on Monday, June 2 – after the record date had already passed. You would have had to purchase the stock on May 27 to get the dividend; you placed your order on May 28, which was the ex-dividend date.

It's worth repeating that buying before the ex-dividend date doesn't make you richer, and buying on or after the ex-dividend date doesn't make you poorer. If that were the case, everyone would buy stocks just in time to pocket the dividend, then quickly sell them and move on to the next opportunity. Unfortunately, no such free lunch exists.

Still, it's important to understand the various dividend dates to save yourself from unnecessary stress when a dividend you thought you had coming doesn't arrive.