Here’s the process flow of how Dividends are paid out:
Dividend Payment process
Dividend Declaration Date: This is the day the Board of Directors authorize and announce the dividends to its shareholders. Once the dividend is authorized it becomes the company’s legal liability to pay such dividends.
Ex-Date or Ex-Dividend Date: As the name suggests, Ex-Dividend date is the date on which the stock trades without the dividend included in it. Normally the price of the stock will drop to the extent of the dividend declared on the ex-dividend date. You will have to ensure that you buy the stock before the Ex-Dividend date to be eligible for the dividends. 
You will NOT get the dividend in case you are buying the stock ON the ex-dividend date.
Record Date: Normally there’s a certain amount of time involved between when the shareholder’s buy stock and when their names are registered in the company’s records. Dividends are paid to shareholder’s whose names appear in the company’s records as on the Record date.
Record date is normally 3-4 days after the ex-dividend date. If you buy the stock by Ex-Date, you can expect your name to be in the Company’s record by the Record Date.
Dividend Payment Date: This is the day on which the company distributes dividends to its shareholders. This may be within 30-45 days of having declared the dividend. Companies pay out dividends by either sending you a check or mostly by making an electronic transfer into your bank account. Make sure you have updated your bank details correctly with the DP to ensure timely credit of Dividends.
Let’s look at a practical example to get better understanding:
Strides Arcolab announced a Special Dividend of Rs.500 on the 10th of December 2013 and the Ex-Date was 19th December 2013. This meant that anyone buying the share until the Ex-Date (until 18th of December) would be eligible for the dividends.
The closing price of Strides Arcolab on 18th December (One day before Ex-Dividend Date) was Rs.880. On the 19th (Ex-Dividend Date) it opened at a price of Rs.352 which was the price not including the dividend declared.
In the above example,
Dividend Declaration Date was 10/12/2013
Ex-Date was 19/12/2013, if you would have bought the stock before 19th you would have been eligible for the special dividend declared.
From the time the Dividend was declared till the Ex-date the stock was trading with its dividend value included in it. In such period the stock is said to be trading Cum Dividend.
Important:
- Dividend is always declared as a percentage on the Face Value of the share. So if the company declares a dividend of 500% it means 500% of the Face Value of the share and not on the current market price of the share. If the face value of the share is Rs.10 then you will be eligible for a dividend of Rs. 50 (10*500/100)
- Income Tax Treatment: Companies paying out the dividend are required to pay Dividend Distribution Tax (DDT)/Corporate Dividend Tax (CDT) of 15% plus surcharge and education cess. Dividend received in the hands of the shareholders/investors are exempt from tax provided the company paying such dividends has already paid the DDT/CDT.
Hopefully this should be able to help you out with your queries on dividends. Do feel free to post any queries if you have.