1-1, VNI has a reported P/E of 12, which is considered a low P/E. Notice how SHC has a relatively high P/E (76). This stock is considered too pricey because you’re paying a price equivalent to 76 times earnings. Also notice that DBC has no available P/E ratio. Usually this lack of a P/E ratio indicates that the company reported a loss in the most recent four quarters.
Day last
The “Day Last” column tells you how trading ended for a particular stock on the day represented by the table. In Table 1-1, LDI ended the most recent day of trading at $41. Some newspapers report the high and low for that day in addition to the stock’s ending price for the day.
Net change
The information in the “Net Chg” column answers the question, “How did the stock price end today compared with its price at the end of the prior trading day?” Table 1-1 shows that SHC stock ended the trading day up 25 cents (at $21.25). This column tells you that SHC ended the prior day at $21. VNI ended the day at $22 (up 10 cents), so you can tell that the prior trading day it ended at $21.90.
Using News about Dividends
Reading and understanding the news about dividends is essential if you’re an income investor (someone who invests in stocks as a means of generating regular income; see Chapter 3 in Book 3 for details). The following sections explain some basics you should know about dividends.
www.wsj.com), Investor’s Business Daily (www.investors.com), and Barron’s (www.barrons.com/).
Looking at important dates
Date of declaration: This is the date when a company reports a quarterly dividend and the subsequent payment dates. On January 15, for example, a company may report that it “is pleased to announce a quarterly dividend of 50 cents per share to shareholders of record as of February 10.” That was easy. The date of declaration is really just the announcement date. Whether you buy the stock before, on, or after the date of declaration doesn’t matter in regard to receiving the stock’s quarterly dividend. The date that matters is the date of record (see that bullet later in this list).
Date of execution: This is the day you actually initiate the stock transaction (buying or selling). If you call up a broker (or contact one online) today to buy (or sell) a particular stock, then today is the date of execution, or the date on which you execute the trade. You don’t own the stock on the date of execution; it’s just the day you put in the order. For an example, skip to the following section.
Closing date (settlement date): This is the date on which the trade is finalized, which usually happens one business day after the date of execution. The closing date for stock is similar in concept to a real estate closing. On the closing date, you’re officially the proud new owner (or happy seller) of the stock.
Ex-dividend date: Ex-dividend means without dividend. Because it takes one day to process a stock purchase before you become an official owner of the stock, you have to qualify (that is, you have to own or buy the stock) before the one-day period. That one-day period is referred to as the “ex-dividend period.” When you buy stock during this short time frame, you aren’t on the books of record, because the closing (or settlement) date falls after the date of record. However, you will be able to buy the stock for a slightly lower price to offset the amount of the dividend. See the next section to see the effect that the ex-dividend date can have on an investor.
Date of record: This is used to identify which stockholders qualify to receive the declared dividend. Because stock is bought and sold every day, how does the company know which investors to pay? The company establishes a cut-off date by declaring a date of record. All investors who are official stockholders as of the declared date of record receive the dividend on the payment date, even if they plan to sell the stock any time between the date of declaration and the date of record.
Payment date: The date on which a company issues and mails its dividend checks to shareholders. Finally!
For typical dividends, the events in Table 1-2 happen four times per year.
TABLE 1-2 The Life of the Quarterly Dividend
| Event | Sample Date | Comments |
|---|---|---|
| Date of declaration | January 15 | The date that the company declares the quarterly dividend |
| Ex-dividend date | February 9 | Starts the one-day period during which, if you buy the stock, you don’t qualify for the dividend |
| Date of record | February 10 | The date by which you must be on the books of record to qualify for the dividend |
| Payment date | February 27 | The date that payment is made (a dividend check is issued and mailed to stockholders who were on the books of record as of February 10) |
Understanding why certain dates matter
As an example, say that you want to buy ValueNowInc (VNI) in time to qualify for the quarterly dividend of 25 cents per share. Assume that the date of record (the date by which you have to be an official owner of the stock) is February 10. You have to execute the trade (buy the stock) no later than February 8 to be assured of the dividend. If you execute the trade right on February 9 (the ex-dividend date), you will not qualify for the dividend because settlement will occur after the date of record.
But
