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Ask TheStreet: Dividends

Gregg Greenberg

Editor's Note: Ask TheStreet is designed to answer questions about the market, strategies, and investment methods. Please email us to ask a question, but keep in mind that we cannot offer specific investment advice.

When do you have to purchase a stock in order to get the dividend? -- S.J.

Gregg Greenberg: There are two dates to keep in mind when determining whether you are entitled to a company's stock or cash dividend: the "record date" and the "ex-dividend date."

The record date is when you must be on the company's books as a shareholder to receive the dividend. After the company establishes the record date, the ex-dividend date is normally set for two business days before the record date. (Remember, that's business, not calendar, days.)

If you purchase a stock on or after its ex-dividend date, you will be out of luck when it comes to the dividend payment. So don't dawdle, because if you do the seller will pocket the dividend instead of you.

Also, if a company pays out 20 cents a share every quarter, all other things being equal, the shares would likely open down about 20 cents lower on the ex-dividend date because buyers that day will not receive the income.

The one wrinkle in all of this is that the dividend itself is usually not paid out until two to four weeks after the ex-dividend date. Investors can sell shares any time on or after the ex-dividend date and still receive the payout, even though the stock is no longer in their account.

What happens to the stock of a company that comes out of Chapter 11 bankruptcy? Do you lose all your shares of the company? -- H.A.

Don't be surprised if you see a company's securities continue to trade even after the company has filed for bankruptcy under Chapter 11. In most instances, even when a company is delisted from one of the major stock exchanges, its shares may continue to trade on either the over-the-counter bulletin board or the Pink Sheets. According to the Securities and Exchange Commission, there is no federal law that prohibits trading of securities of companies in bankruptcy.

There are many risks involved with buying stock of companies in bankruptcy protection. Most of the time, it's a guaranteed way to lose money.

In bankruptcies, bondholders and unsecured creditors are paid from the company's assets before common stockholders. Although a company may emerge from bankruptcy as a viable entity, the creditors and the bondholders generally become the new equity owners -- and their first order of business is to cancel the existing equity shares.

In those cases where existing shareholders do get to participate in the reorganization plan, their shares are usually subject to substantial dilution. So don't expect much on this score, either.

If the company does come out of bankruptcy, there may be two different types of common stock, with different ticker symbols, listed for the same company. One is the old common stock (the stock that was on the market when the company went kaput), which will trade on the Pink Sheets or over the counter with a five-letter symbol ending in "Q".

The second is the new common stock that the company issued as part of its reorganization plan. If you are betting on the company to rise from the ashes, this is the one you want, so make sure you place your order correctly.

I own a few stocks that have not participated in the recent market rally. I'm pretty sure they are good companies and good stocks. Should I be concerned? -- T.B.

Hey, it's hard not to be concerned when your stocks don't rally along with the rest of a bull market. It's kind of like going to a casino and watching everybody else have a great time as they rake in the chips, while you just sit there breaking even.

But unlike betting in a casino, where the longer you stay at the tables the more likely you are to lose your cash, investing in good stocks for the long term will more often than not pay off handsomely.

If you see your stocks are not joining in the market's reindeer games, the first thing you should do is find out why. Maybe your beloved stock is not as good as you originally believed. So the first step is to review its financials and do some homework.

Once you've done your due diligence and feel even more confident that you are right and the market is wrong, then you may consider buying some more shares at these depressed prices. If your stock is as good as you believe, then you will have a lot more shares to profit from when it finally comes around.