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In each case the final dividend is substantially higher than the interim although the proportions vary. Retailer Marks & Spencer’s interim is more than half the size of the final while telecom giant Vodafone’s is just under half and chemicals group Johnson Matthey is closer to a 1:3 ratio.
Four-times-a-year dividend payments
International companies such as oil majors and pharmaceutical groups are more likely to pay quarterly dividends, as are foreign-based companies. Quarterly accounts are the norm in the United States so you will often find that companies producing their results in US dollars rather than sterling pay quarterly dividends.
These companies sometimes refer to the final dividend as the fourth interim dividend. If you see an interim dividend declared for the fourth quarter, do not expect another, final, dividend on top. It has been called an ‘interim dividend’ so that it can be paid without waiting for the approval of shareholders at the AGM.
Table 2.2 gives examples of companies paying four dividends a year.
Table 2.2 – Sample dividend payments for UK companies
These three companies all have international operations including interests in the United States. Two of them, one bank(HSBC) and one oil company, declare their results and set their dividends in US dollars while Barclays retains its Britishness with results and dividends in sterling. The figures given are for the 2010 calendar year.
We can see that they each have a different attitude to how the dividend should be split between the four payments:
Barclays has decided to make the final dividend more than double the size of each of the three interim dividends.
HSBC has a higher final dividend than the interim dividends but one that is only 25% greater than each interim.
Shell makes four equal payments – in this instance changes in the £/$ exchange rate meant that the final dividend was lowest in sterling terms.
How dividends are weighted between interim and final
There are no hard and fast rules as to how much of the total dividend should be paid at the interim stage and how much should be held back for the final.
Some companies, such as package holiday suppliers and some retailers, depend heavily on a particular time of year. They tend to put the better trading period into the second half, thereby seeing the results for the full year before deciding on the size of the final dividend.
As a rough guide, companies making two payments a year tend to pay one-third of the total at the halfway stage and two-thirds at the final stage. Companies paying four dividends a year usually spread the payments more evenly and may actually make four equal payments.
One should not draw inferences from the differing policies regarding the weighting of the dividend. What matters is that the company pays them, and pays according to a consistent policy year by year.
When you get paid
Dividends are not paid immediately the accounting period ends. It can be several months before you get your money. Table 2.3 covers five companies picked at random from those with a financial year ending on 31 December.
The list is in order of the announcement, in early 2011, of the full-year results for 2010. The dividend referred to is the final dividend.
Table 2.3 – A sample of key dividend dates
Source: Individual company announcements
With reference to Table 2.3, some notes follow on each column.
1. Results announced
We can see first of all that there was a gap of more than a month between the first and the last results announcement. Larger companies tend to produce results more quickly than smaller ones as they have a larger and more experienced financial staff.
Each company tends to produce its results on pretty much the same day each year, give or take a week, so we should not worry unduly unless results fail to appear at the normal time. As a general principle, any delay in producing results is likely to be because of particularly bad news.
2. Ex-dividend
The second date shows when the companies go ex-dividend (often abbreviated to ex-div). Buy before this date and you are entitled to the dividend that has been announced. Buy on or after this date and you are not entitled to the dividend.
The ex-dividend date is always a Wednesday. While in theory it could be any day of the week, there is some advantage to investors in knowing that the cut-off point is always the moment that trading closes on Tuesday evening. After that it is too late to buy for the latest payout.
While several newspapers publish each Monday a list of companies due to announce results in the coming week, a comprehensive list of those going ex-div is not so readily available. You will probably find that the Reuters website is the most convenient way to check. Access to this page is free.
http://uk.reuters.com/business/markets/dividends
On the day that shares go ex-dividend the share price will usually fall by roughly the same amount as the dividend to reflect the fact that new share buyers will not receive the dividend.
Table 2.4 shows three companies from different sectors that all went ex-dividend on 17 August 2011.
Table 2.4 – Sample of share price moves when companies go ex-dividend
Source: Company announcements
The FTSE Index fell 30 points on that day, about half of 1%, after a weak opening so we would have expected shares going ex dividend to lose slightly more than the amount of the dividend.
We can see that all three shares opened lowed than we would have expected, all things being equal – that is, they all fell by more than the dividend to which share buyers were no longer entitled. This reflected weak stock market conditions. Pearson and Prudential continued to give ground during the day although BAT began to buck the trend, recovering just 1p during the course of the trading day.
3. Date on register
Dividends are sent to those who appear on the share register on this date, which always falls on a Friday two days after the ex-div date to allow time for the register to be updated with all deals done cum dividend.
Do not worry if you buy or sell shares on the Wednesday or Thursday.
