Final answer:
The statement that the board of directors formally declares the cash dividend on the declaration date and announces it to shareholders is indeed true. It's a formal and legal step in the dividend payment process that sets subsequent key dates, like the record, ex-dividend, and payment dates.
Step-by-step explanation:
The declaration date in the dividend payment process is a pivotal moment where a company's board of directors officially announces and authorizes the payment of a cash dividend. This announcement signifies a commitment to distributing a portion of the company's earnings to its shareholders. The declaration date is crucial as it sets in motion a series of events and establishes the framework for the entire dividend payment timeline.
During the declaration date, the board not only declares the dividend but also communicates important details to shareholders. One key piece of information is the record date, which is the date used to identify shareholders who are eligible to receive the declared dividend. Shareholders recorded on this date will receive the dividend payment.
Additionally, the ex-dividend date is announced on the declaration date. This date is significant for investors buying or selling shares. Buyers who acquire shares after the ex-dividend date will not be entitled to receive the upcoming dividend. It is the first date on which new shareholders are excluded from the dividend payment.
Lastly, the declaration date provides the payment date, indicating when the dividend will be disbursed to eligible shareholders. This date represents the actual distribution of cash to those investors entitled to the dividend based on their ownership on the record date.
In summary, the declaration date is a pivotal step in the dividend payment process. It formalizes the decision to distribute dividends, communicates essential details to shareholders, and establishes the subsequent record date, ex-dividend date, and payment date.