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A dividend notification is a formal process that corporations follow as part of the preparation for record date of a stock dividend. The notification is provided to the Uniform Practice Department of NASDAQ; this allows the stock market to set what is known as the ex-dividend date associated with the dividend. Currently, companies are required to report this information no later than ten days before the actual record date for the stock dividend.
Providing the dividend notification at least ten days before the record date is key to making sure that any transactions involving the security associated with the dividend are completed in a timely manner. By issuing a formal notice to NASDAQ, it is possible for the stock market to set the ex-dividend date, publish the date and thus provide all investors with transactions pending the opportunity to complete them before the record date arrives.
The dividend notification is a mechanism that is in the best interests of all investors with transactions pending. This is because the price of the stock is impacted once the record date arrives. The dividend notification makes it possible for the stock market to give investors ample notice to take steps to complete any transactions associated with the security and thus avoid a reduction in the stock price.
When investors choose to observe both the ex-dividend date set by NASDAQ and the record date that is confirmed in the dividend notification, it is possible to avoid involvement with the decrease in unit value of the stock in question. Sidestepping this decreased value in the shares is important to investors with transactions pending, because they are not eligible to participate in the issue of the dividend. Therefore there is no revenue generated to cover the reduction in value of the stocks when the company pays the dividends out of its cash reserves.
The issuance of a dividend notification is also in the best interests of NASDAQ. By receiving information regarding a record date for the issuing of dividends, the market is able to provide anyone trading on the market plenty of time to decide how they wish to approach the stock in question. Since there is no great urgency to make decisions overnight, investors can weigh all factors and thus do not inundate the market with orders that may or may not impact the overall function of NASDAQ. From this perspective, providing a dividend notification is very important to helping the market to continue to function efficiently.