The declaration date is the date on which the Board of Directors of a company actually sets the amount of the next dividend. As we previously mentioned, dividends are typically paid on a quarterly basis. This declaration typically occurs weeks in advance of the actual payment date.

The record date is the date that a person actually has to own shares of stock in order to receive the dividend. On this date, the company actually prepares a list of shareholders who will receive the dividend payment.

The ex-dividend date is the day where shares will start trading without the dividend. On this day the price of the stock will be reduced by the amount of the dividend. The reduction comes from the price of the last trade in the previous session. For example, if a stock is selling at $20 on the day before the ex-dividend date, and it pays a .25 quarterly dividend, then it will open the next day at $19.75. This assumes that there are no other factors that may affect the price of the stock at the open on the morning that the stock trades "ex". Stocks that are ex-dividend usually have an "x" next to their closing prices on quote systems and in financial publications to indicate the ex-dividend date.

In addition, all pending orders to buy or sell the stock are lowered to reflect the amount of the dividend payment. The ex-dividend date is usually three days before the record date. This gives time for purchases and sales of the stock made on the ex date to settle by the record date.

The payable date is the date that the dividend payment actually goes out to the shareholders of record. It will be mailed to those shareholders who hold the stock in physical form, meaning that they actually hold the stock certificate registered in their name. It will be sent to the brokerage firm on this date if the stock is held in a brokerage account, as is very common these days.

A Short Term Trading Tactic

With these four dates in mind, lets take a look at a short term trading tatic called "dividend capture". This strategy is executed when a trader buys a stock just before the ex-dividend date, so that he or she will be a shareholder of record on the record date, and will receive the dividend. Because the stock falls by the amount of the dividend on the ex-dividend date, the strategy calls for the trader to then wait for the stock to move back to the price where he or she bought it before the ex-dividend date. At this point, the stock is sold for a break even trade. Thus the dividend is received, or captured by the trader with no further exposure to the movement in the stock price after it is sold for a break even.

When attempting to execute this short term trading strategy, look for stocks with high volume, and a relatively large dividend payment. Higher volume facilitates exiting the position without affecting the stock price. The high dividend allows for more profit potential. Use of a discount broker is also beneficial as it will reduce the overall cost of the trade, and increase the return of implementing the strategy. Please note that this is an aggressive trading strategy, and not appropriate for everyone. Study the concept. "Paper trading", or practicing the strategy before using actual money is always a prudent step when implementing new strategies into your portfolio of trading tools.