know whether shares have been bought or sold cum or ex dividend.
If you bought cum (with) the dividend you are entitled to it; if you bought ex (without) then it is not yours but if this worries you, just do not buy or sell shares around the ex-dividend date.
The date on register is always Friday for historical reasons. The London Stock Exchange used to have two-week settlement periods. On alternate Fridays all the deals of the previous two weeks were processed. So all deals done cum dividend were processed on the Friday and shareholders entitled to the dividend were on the register that day.
With the arrival of electronic trading all deals are now settled and processed in two days. The Friday register day has remained but the ex-dividend date has moved closer to it to allow for the shorter settlement and processing period.
4. Dividend paid
You may think that there is absolutely no reason why the cheques or transfers cannot go out first thing Monday morning, and you would be quite right, but alas there is further delay before you get the money that is rightfully yours.
The company arbitrarily sets a date on which the dividend is actually paid. As with all the other dates in this equation, the interval can vary considerably.
For instance, although Cookson takes a full two months to announce its annual results and a further two-and-a-half months to go ex-dividend, its dividend payment date is just two-and-a-half weeks later. BAT can get its results out in less than two months and goes ex- dividend only two weeks later but it takes nearly two months to actually shell out.
There is no logical reason why any company should delay the payment of dividends once they are announced. Those that do so tend to be somewhat defensive if you raise the issue.
They normally argue that as long as the dividends come round at regular intervals, that is all that matters to shareholders. The company is making good use of the money in the meantime, they say.
Once we finally reach the dividend paid date, it can still take a few days before your money is actually in your bank account, even in this electronic age.
There are two methods of payment: through the Bankers’ Automated Clearing Services (BACS) system, where you are paid automatically into your bank or stockbroking account, or by cheque.
You may have no choice in the payment method. Most accounts and virtually all online accounts are arranged so that dividends are transmitted into your stockbroking account by BACS and, if you have asked for the cash to come to your own bank account, will be transmitted onwards by your broker, also by BACS.
Check with your broker when you set up your account what the payment method will be.
There are several advantages of being paid by BACS:
The dividend is transmitted from the registrar on the payment date and should appear in your own bank or stockbroking account within a couple of days.
There is no chance of the payment being delayed in the post.
You do not have to wait for a cheque to clear.
This payment method is more secure than receiving a cheque through the post.
If you move house, payments will not be directed to your old address.
How time flies
All in all, there can be a considerable delay between a company’s financial year end and the day when the dividend is actually in your account. The time difference can vary enormously. Among our examples, Shell pays fairly quickly but even so it is nearly three months after year end and seven weeks after results are announced before the cash reaches your account. This is about as fast as it gets.
Cookson pays a full five months after year end and three months after the results announcement; for Menzies the gap is nearly six months from year end.
5. The AGM
Finally, we note the varying attitudes towards the AGM. Shell and HSBC do not even bother to wait for shareholder approval before making the final payment for the year. In an exercise in semantics, they call the final dividend the ‘fourth interim dividend’, so technically there is no final dividend for shareholders to approve.
BAT goes for a halfway house, with the AGM after the ex-dividend date – like Shell and HSBC – but before the payment date. BAT asks shareholders to approve the report and accounts without specific reference to the dividend.
Cookson and John Menzies both seek approval from shareholders before the ex-dividend date and both have a resolution to approve the final dividend on the AGM agenda.
Timing your income
If you want to receive dividends to live on or to supplement your pension then you would naturally prefer to receive a roughly similar amount each month.
Alas, this feat is virtually impossible (see Figure 2.1) and you should not attempt to pick investments on the basis that a particular company pays a dividend in a month where you are a bit short of the readies. Choose the best prospects, even if that makes your income lumpy.
Spreading the dividends you receive is difficult because:
Most companies have year ends at 31 December or 31 March.
Retailers usually have financial years running to the end of January, adding to the bias towards announcing full-year results in the early part of the year.
Very few companies apart from holiday operators have year ends in the autumn.
You are likely to have different sizes of holdings in your portfolio and in any case companies pay different sizes of dividends.
As I have noted, some companies take longer to pay the dividend than others, which will help to spread your income a little more evenly, but you have to accept the fact that you will not have the same amount coming in each month.
But then, nor will your outgoings be the same each month. While day-to-day items such as food and clothing can be spread fairly easily, energy costs will be higher in winter and holiday spending higher in summer. Always give yourself a little leeway in terms of keeping some ready cash available.
Figure 2.1 illustrates the distribution of final dividend payment dates throughout the year for the 618 companies in the FTSE All-Share Index.
Figure 2.1 – Distribution of dividend payment dates for FTSE All-Share companies
As can be seen, final dividend payment dates are clustered in the period May–Aug, with the most popular month being May, when 109 companies paid their dividends (which largely reflects the fact that the overwhelming majority of companies have their financial year ends between 31 December and 31 March). From this, we can see that if one holds a reasonably diversified portfolio of FTSE All-Share companies, the (final) dividend income is going to be concentrated in the May–Aug
