Divining the Dividends

You've heard Cramer go on about dividends lately. That's because good, solid dividends are reassuring in the current volatile downturn and they "put money right in your pocket." How do dividend payments actually work, though? On today's show, Cramer gives you the details, along with what may be the most important thing you need to know about dividend payments: when and how to get them.

You may hear professionals and analysts throwing around a lot of dates when discussing dividends. The two most commonly bandied-about dates are the ex-date -- or ex-dividend date -- and the record date. The ex-date, as Cramer explains, is "the first date a stock trades without the right to a quarterly dividend." Two trading days after that is the record date, which is when the trade settles and appears in your brokerage's records.

But more important than those two dates, Cramer argues, is one of his own invention: the "must-own" date. This is the cut-off day for when you can buy a stock and still earn a dividend payment for that quarter. It's the date you must own stock in the company to be considered a shareholder at the time of dividend payment. All you need to remember is that the "must-own" date is the trading day before the ex-date, and three trading days before the record date.

As an example, Cramer uses U.S. Bancorp . USB is a Cramer favorite: a company that's paid dividends for an incredible 146 years, and has maintained or increased its payouts for the last 75 of those years!

USB's next quarterly dividend of 42.5 cents will be paid out on January 15. The "must-own" date to receive that payout is December 26. Even if you hold USB shares almost all quarter, but sell it before the market closes on December 26, you won't receive the payout. On the flip side, even if you don't have any USB shares currently, you could buy in on the 26th -- and, if you like, sell the stock after the 29th, the ex-date -- and you'll still receive the dividend payout in January.

Bottom Line: Forget all the gibberish -- if you want to know when you have to own a stock to be entitled to its next dividend, you must own it at the close of the day before the ex-date -- for U.S. Bancorp that means you have to buy it before the close this Friday, December 26.

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