Common shares, rights, dividend dates and splits

What a common share is

Lakehead Robotics' common share is a residual claim: after every creditor, every debenture holder and every preferred shareholder has been paid — in a normal year and in a wind-up — whatever is left belongs to the common shareholders, in proportion to their shares. That residual is the source of both the upside and the risk. With it come rights the paper lists: one vote per share, exercised at the annual meeting in person or by proxy; a dividend only if the directors declare one — there is no obligation, and a missed common dividend is neither a default nor an arrear; limited liability — the most you can lose is what you paid; no maturity; and, where the articles provide, a pre-emptive right to buy a share of any new issue before outsiders, so that ownership is not diluted (under the CBCA it exists only if the articles grant it — it is not automatic).

The four dividend dates

Lakehead's board declares a $0.30 dividend. Four dates follow, in this order:

1. Declaration date — the board announces the amount, the record date and the payment date. The dividend becomes a liability.
2. Ex-dividend date — the first day the share trades without the dividend. Buy on or after this date and the seller keeps the $0.30. The price opens about $0.30 lower, because the buyer is no longer buying the payment.
3. Record date — the company's register is read; whoever is on it gets paid.
4. Payment date — the cash arrives.

Where the ex-date sits relative to the record date depends on the settlement cycle. Under T+1 (since 27 May 2024) a trade settles the next business day, so the ex-date is the record date. Older material written for T+2 puts the ex-date one business day before the record date. The callout below says how to answer.

Worked example — a 3-for-1 split

Lakehead trades at $84 with 6,000,000 shares. A 3-for-1 split gives every holder three shares for each one held:

• Price: =84*1/3 = $28.00
• Shares: =6000000*3/1 = 18,000,000
• Market value: =84*6000000 = 504,000,000 before; =28*18000000 = 504,000,000 after.

Nothing of value was created — the pizza was cut into more slices. Companies split to bring the price back into a range retail investors and board lots (Lesson 11.7) find convenient. A stock dividend is a small split by another name: a 5 % stock dividend on 1,000 shares at $28 gives =1000*1.05 = 1,050 shares at =28*1000/1050 = $26.67 — again 28,000 either way, and no cash leaves the company. A reverse split (1-for-10) runs the arithmetic backward to lift a low price.

Payout, retention and the signal

Of each year's earnings a company pays out a fraction as dividends and retains the rest to reinvest — the retention that drives growth in Lesson 11.4. A DRIP lets holders reinvest cash dividends in new shares, usually without commission. Boards hate cutting a dividend because the market reads a cut as a signal that the residual has shrunk — which is why dividends rise slowly and fall rarely.

Recompute

A 2-for-1 split at $52\ast \ast :price\ast \ast$26.00, shares doubled, value unchanged. Sequence the dates for a new dividend, cold: declaration, ex-dividend, record, payment.