The Dividend Investor. Rodney Hobson
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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 period.
Interim dividends tend to be concentrated around the calendar year end.
Key points
Income from dividends will be lumpy with the bulk of payments coming in mid-year and a grouping of interim payments around year-end.
Do not try to smooth out income by investing in a company just because it makes payments in spring and autumn.
Do not worry if a company takes longer than others to pay the dividend – what is important is that it is a sound investment and it pays dividends at the same time each year.
Chapter 3. Where to Find Information
Company news
One of the great joys of investing in the modern era is that much of the information you need is freely available. Indeed, London Stock Exchange rules dictate that all ‘price sensitive’ information (that is, information that could affect a company’s share price) must be out in the open.
This information is disseminated almost exclusively through the stock exchange’s own Regulatory News Service (RNS), so called because it publishes information that companies are required to make public under the exchange’s regulations. This used to be the only source of announcements but in the spirit of competition other news providers are now allowed to offer alternative services. They can be identified on announcements by the three initials given for each one below in brackets.
Most companies have stuck with RNS but some use PRNewswire (PRN) and others, mainly foreign-based companies with a London listing, opt for Hugin (HUG), a European corporate communications specialist. Also authorised are Business Wire (BZW), part of Warren Buffet’s Berkshire Hathaway, and Cision (CIS), an international public relations and marketing group.
Most announcements that contain new information affecting the dividend are issued at 7 am when the market is closed and appear instantaneously on those financial websites that publish regulatory news announcements, whether from RNS or a competitor. The most important ones are results announcements and possibly trading updates. We shall look at these in more detail in the next chapter.
Less price-sensitive matters, such as setting the precise sterling equivalent of a previously announced dividend denominated in a foreign currency, may be issued at any time until the RNS service closes at 6:30 pm but usually come out during the morning.
Company websites
Your primary source of information should be the company’s own website. All official announcements made by the company must appear there. While a company may choose, in its statements, to highlight favourable rather than adverse happenings, it cannot pick and choose which announcements go on its website. They all go up there.
Furthermore, key figures such as sales, profits, earnings per share and dividends must be given for the past five years so you can see how the company has been progressing.
You will find recent annual reports, results announcements and trading updates in full on the website. Usually you will find them under a section labelled ‘Investors’ or ‘Investor relations’ or something similar.
If the company sells goods or services to the general public, the homepage will almost certainly be full of its products rather than financial information but a search around the site should soon reveal the right location. Try ‘About us’ or ‘Corporate news’.
Full, fast and long-lasting information
Not only is this the fullest information you will receive but it also has the longest life. Years after you consigned your newspaper to the recycling bin the company website will still be there.
It is also a speedy source of news, as announcements go up on the website on the day they are released, and as early as possible.
Unfortunately you cannot always be sure when an announcement will be made, although results and quarterly trading updates tend to come out at much the same time each year. The Sunday and Monday editions of newspapers carry a list of company announcements due that week, although the lists will not be comprehensive.
Any announcement usually has bullet points at the front highlighting the main points of the announcement. These bullets should give you an overview of the period covered, including the key information you want – but be wary: directors, being human, may tend to accentuate or even exaggerate the positive points and play down the negative aspects.
You should go down to the income statement and look for yourself at the figures for turnover, profits, earnings per share and dividends. One column will cover the latest reporting period and there will be a second column for the corresponding period the previous year, so you can check what progress, if any, has been made.
London Stock Exchange
One of the most important changes to the London Stock Exchange website in recent years has been the introduction of comprehensive reports on each quoted company.
Look on www.londonstockexchange.com and click on ‘Prices and Markets’ and then on ‘Stocks’. Alternatively, type ‘Company Profiles’ into the search facility. The process is a little cumbersome but you should soon get the hang of it.
You will find a five-year overview of each company’s strengths, weaknesses and financial