Corporate Actions & Dividends

This FAQ provides essential information about corporate actions and how they affect your account, including details on dividends and the benefits of enrolling in a Dividend Reinvestment Plan (DRIP).

What is a Corporate Action?

A corporate action refers to any event initiated by a publicly traded company that has the potential to materially affect its stakeholders and shareholders. These events typically involve changes in the company’s capital structure, ownership, or governance. Corporate actions can be involuntary (or mandatory), initiated by the company itself, or voluntary, where shareholders choose to participate.

Examples of corporate actions include:

Dividend payments
Stock splits
Mergers and acquisitions
Name and symbol changes
Rights offerings
Tender offers
Spin-offs
Stock buybacks

These events can have various implications for investors, including potential changes in their investments’ value, ownership rights, and tax obligations.

What is the difference between mandatory and voluntary corporate actions?

Mandatory corporate actions are initiated by a company’s board of directors and apply uniformly to all shareholders. These actions automatically affect investments upon receipt of cash or shares from the custodian, or upon receiving notices of processed allocations. Examples of mandatory corporate actions include dividend payments, stock splits, mergers and acquisitions, and name and symbol changes.

Voluntary corporate actions require a response from investors for participation. When a voluntary corporate action is announced, shareholders are provided with detailed instructions on how to participate. Examples of voluntary actions include tender offers, exchange offers, mergers with an election, odd-lot offers, and conversions.

How will my account be affected when a corporate action is processed?

When a corporate action is processed, your account may experience temporary restrictions on certain symbols. This is to ensure that the event is correctly reflected in your account. The duration of these restrictions depends on when our clearing firm receives all the necessary details and payment from the custodian.

When are corporate actions typically processed?

We strive to process corporate actions ahead of regular trading hours to minimize disruption to our customers. However, the timing of processing depends on various factors such as when we receive all the necessary information and payment from the custodian and the complexity of the corporate action. In some cases, if we receive late notifications, corporate actions may be processed during trading hours. Rest assured that we make every effort to minimize any inconvenience to our customers during these processes.

Will I still be able to trade during this period?

Yes, while your account may experience temporary restrictions on certain symbols during the processing of a corporate action, this should not impact your ability to trade overall. Once the corporate action is processed and the restriction is released, you will be able to resume trading as usual.

How do I know if I am eligible for a voluntary corporate action?

We will notify you by email when we receive details about a voluntary corporate action for which you are eligible. This email will contain all the necessary information regarding the corporate action, including instructions on how to participate. If you have any questions or wish to participate, please contact our support team for assistance.

What should I do if I receive a notification about a voluntary corporate action?

Upon receiving a notification about a voluntary corporate action, we advise you to carefully review the details provided in the email. If you wish to participate, follow the instructions outlined in the notification. If you have any questions, don’t hesitate to contact our support team for assistance.

Are there any deadlines I need to be aware of for participating in a voluntary corporate action?

Yes, it’s important to note that our clearing firm requires a deadline for participation that is sooner than the offer deadline. This is necessary to allow our clearing firm adequate time to submit the necessary details to the transfer agent and custodian. Therefore, acting promptly upon receiving the notification is important to ensure you meet the participation deadline.

What happens if I miss the deadline mentioned in the notification?

If you contact us after the branch cut-off date mentioned in the notification, unfortunately, you may not be able to participate in the voluntary corporate action. Therefore, we urge you to review the notification promptly and take action within the specified timeframe if you wish to participate.

Are there any fees associated with mandatory corporate actions?

There are no fees associated with mandatory corporate actions. These actions, such as dividend payments or stock splits, are initiated by the listed company and automatically apply to all shareholders without any additional charges.

What are Mandatory Corporate Actions with Round-up Shares and when does the $0.25 fee apply?

Mandatory corporate actions are events initiated by companies that automatically affect all shareholders, such as stock splits, mergers, or name changes. Unlike voluntary corporate actions, shareholders cannot opt out of these events.
The “round-up shares” feature applies when these corporate actions result in fractional shares. Instead of receiving cash for the fraction, your fractional share position is rounded up to the next whole share. The $0.25 fee applies each time this rounding up occurs.
Example:
Let’s say a company announces a 3-for-2 stock split. This means for every 2 shares you own, you receive 3 shares.

If you own 100 shares, you’ll receive 150 shares (no fee applies as no rounding needed)
If you own 101 shares, you would normally receive 151.5 shares
- With round-up: You receive 152 shares (rounded up from 151.5)
- A $0.25 fee applies for this round-up event

Another example would be a 5-for-4 stock split:

If you own 40 shares, you’ll receive 50 shares (no fee applies)
If you own 43 shares, you would normally receive 53.75 shares
- With round-up: You receive 54 shares (rounded up from 53.75)
- A $0.25 fee applies for this round-up event

This fee becomes effective January 1, 2025.

Are there fees associated with voluntary corporate actions?

Yes, fees may apply if you choose to participate in a voluntary corporate action. Examples of voluntary actions include tender offers, exchange offers, or mergers. The fees associated with these actions vary depending on the specific event and are outlined in our fee schedule.

How does a stock split or reverse stock split affect my holdings?

Stock Split:

In a stock split, a company increases the number of its outstanding shares by issuing more shares to current shareholders. This is usually done to make the shares more affordable to smaller investors and to increase liquidity.

Example: If you own 100 shares of a company and it announces a 2-for-1 stock split, you will now own 200 shares. However, the price per share will be halved. So, if the share price was $50 before the split, it will be $25 after the split.
Impact on Value: The total value of your holdings remains the same. In this example, the value remains $5000 (200 shares x $25 per share).

Reverse Stock Split:

In a reverse stock split, a company reduces the number of its outstanding shares. This is usually done to increase the share price and to meet minimum price requirements for stock exchanges.

Example: If you own 100 shares of a company and it announces a 1-for-2 reverse stock split, you will now own 50 shares. The price per share will double. So, if the share price was $10 before the split, it will be $20 after the split.
Impact on Value: The total value of your holdings remains the same. In this example, the value remains $1000 (50 shares x $20 per share).

How will my account be affected by a reverse stock split?

Effective Monday, November 18, 2024, the handling of reverse stock split share allocations for events that round up at the beneficial holder level will change. Apex will no longer pre-pay shares. Instead, shares will only be allocated to customer accounts after Apex receives them from the issuer.

The allocation process typically takes three or more weeks after the issuer processes the reverse stock split. During this period, customers who would have received only a roundup share will not see any shares allocated to their accounts during the initial processing. If a customer sells their share during this time, it will be considered a short sale if the shares have not yet been allocated to your account.

This change applies only to reverse stock splits that round up at the beneficial holder level. Reverse stock splits with alternative fractional treatments, such as participant roundup or cash in lieu, are unaffected. This change aims to ensure greater accuracy and accountability in the share distribution process by aligning allocations with issuer deliveries.

What is a dividend?

A dividend is a distribution of a portion of a company’s earnings to its shareholders. This distribution is decided upon by the company’s board of directors. Dividends are one of the ways in which companies reward their shareholders for investing in their business.

There are two main types of dividends: cash dividends and stock dividends.

Cash Dividends: Cash dividends are paid out to shareholders in the form of cash. Shareholders receive a certain amount of money for each share they own.
Stock Dividends: Stock dividends, also known as bonus shares, are paid out to shareholders in the form of additional shares of stock. Instead of receiving cash, shareholders receive more shares of the company’s stock.

When are dividends typically paid?

The timing of dividend payments can vary depending on the company’s dividend policy. Some companies pay dividends quarterly, while others may pay them annually or on a different schedule. It’s important to check the company’s dividend declaration dates and payment dates for specific information regarding dividend payments.

What is a Dividend Reinvestment Plan (DRIP)?

A Dividend Reinvestment Plan or DRIP is a convenient investment option that allows investors to automatically reinvest their cash dividends into additional shares or fractional shares of a company’s stock on the dividend payment date.

Key Benefits of DRIPs:

Compounding: DRIPs take advantage of compounding interest over time, as dividends buy more shares, which in turn could potentially earn more dividends.
Dollar-Cost Averaging: Since DRIPs reinvest dividends regularly, they help in dollar-cost averaging by buying shares at various prices without timing the market.
Convenience: Automatic reinvestment means less hassle for investors, as they do not need to manually reinvest dividends received.
Fractional Shares: DRIPs allow the purchase of fractional shares, ensuring that all dividend income is put to work.

Considerations Before Participating in a DRIP:

Lack of Control: Investors have less control over the timing of reinvestment, which could be at higher stock prices.
Taxation: Dividends reinvested are still subject to tax as ordinary income, so investors should consider the tax implications.
Liquidity: The reinvested funds are less accessible for other investment opportunities or personal needs.
Record Keeping: It can be complex to keep track of cost basis for tax purposes, especially when reinvesting dividends over long periods.

How does BBAE’s Dividend Reinvestment Plan (DRIP) work?

At BBAE, our Dividend Reinvestment Plan (DRIP) offers a systematic approach to growing your investments. Here’s how it functions:

Dividend Conversion Into Shares:

Reinvestment Over Cash: When a dividend is paid by a company, customers enrolled in BBAE’s DRIP don’t receive the dividend in cash. Instead, the dividend is used to acquire more shares or fractional shares of the paying company.
Share Allocation Based on Market Price: The number of additional shares you receive through the DRIP is based on the current market price of the stock at the time of the dividend payment.
Frequency of Dividends: Depending on how often a company distributes dividends, which can be monthly, quarterly, or annually, your DRIP reinvestments will occur accordingly.

Fractional Shares and Compounding:

Fractional Shares: Our DRIP allows for the purchase of fractional shares. This means that even if your dividend doesn’t cover the cost of a full share, you’ll receive a portion of a share proportionate to the dividend amount.
Compounding Effect: As dividends are consistently reinvested, your share count increases. This can potentially result in larger dividend payments in the future, assuming the company’s dividends per share remain constant or increase.

How to Enroll in BBAE’s Dividend Reinvestment Plan:

Log in to your BBAE account.
Navigate to the “My Account” section.
Locate the “Trading Products” section.
Find the “Dividend Reinvestment Plan” option and select Enroll.

Important Note on Enrollment:

Account-Level Enrollment: Our DRIP is managed at the account level, which simplifies the process by applying the reinvestment strategy to all dividends paid by stocks within your account. We do not offer the ability to enroll in DRIP for a particular security only.

By enrolling in BBAE’s DRIP, you’re choosing to automatically leverage your dividends towards the potential growth of your investment portfolio. If you have any questions or need further assistance with the enrollment process, our support team is here to help.

What are the key dividend dates and how do they affect the payment of dividends?

Understanding Key Dates:

Declaration Date: The date on which a company’s board of directors announces the dividend.
Ex-Dividend Date: The first day on which buying a stock does not entitle the new buyer to the declared dividend. This date is typically set one business day before the record date.
Record Date: The date on which you must be on the company’s books as a shareholder to receive the dividend.
Payment Date: The date on which the dividend is actually paid to shareholders.

Selling After the Record Date:

If you sell your shares after the record date but before the payment date, you are still entitled to receive the dividend. Here’s how it works:

Record Date Determines Entitlement: The record date is crucial because it determines who is eligible to receive the declared dividend. If you are listed as a shareholder on the record date, you will be entitled to the dividend even if you sell your shares after this date.
Ex-Dividend Date Importance: The ex-dividend date is usually set one business day before the record date. If you sell your shares on or after the ex-dividend date, you will still receive the dividend because you were a shareholder on the record date.
Payment Date Timing: The payment date is when the dividend is actually distributed to shareholders. This date can be several days or even weeks after the record date. Regardless of whether you still hold the shares on the payment date, as long as you held them on the record date, you will receive the dividend.

Example:

Declaration Date: May 1
Ex-Dividend Date: May 15
Record Date: May 16
Payment Date: May 30

If you sell your shares on May 17 (after the record date), you will still receive the dividend on May 30 because you were the shareholder of record on May 16.

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