Why are we waiting? Dividend delays amongst the UK blue chips

Wednesday, Oct 31 2012 by
8
Why are we waiting Dividend delays amongst the UK blue chips

There is general agreement that the lion’s share of investment returns from the stock market are derived from the compounding effect of the reinvestment of dividends. The evidence from the Barclays Equity Gilt Study suggests this accounts for as much as 90% of the total returns from the UK Market over the longer term. The importance of dividends is recognised in well-known valuation methods such as the Gordon Growth Model, which estimates the present value of future dividends to derive company valuations.

A more pragmatic approach to the importance of dividends is that they are “real” in the sense that once declared and paid, they represent hard cash that cannot be reclaimed by a company. They thus provide a more tangible measure of the financial health of a company than profits or earnings, which are subject to the whims of the auditor, can be subjected to “aggressive” accounting or even restated in later years.

Given such importance placed on dividends by investors, it is strange that so little attention has been paid to the way many companies delay releasing dividend payments to their shareholders. We reviewed the top 25 dividend payers (which together represent almost three-quarters of the dividend income available from the FTSE 350) and detailed these time lags and the wide variation from one company to another.

It is worth explaining the typical dividend timetable for a major listed company, using Vodafone (the largest UK listed dividend payer) as an example. Vodafone has a March year-end. The annual results, and proposed dividend, were announced this year on May 22nd, with a payment date for shareholders set for August 1st. This is a gap of 71 days, or 123 days since the year-end. For those who hold Vodafone indirectly through funds, such as the Munro Fund with a January year-end (and thus a July half-year end), this dividend income cannot be paid out until the end of the first half of next year, i.e. the end of May 2013. This is well over 2 years since the start of the financial year in which Vodafone earnt this money.

Vodafone as it happens is a faster payer than the majority of the top 25 companies. The average gap for these companies between the declaration of the final dividend and its payment is about 82 days. This rises to 121 days…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

Disclaimer:  

Past performance is not a guide to future returns. The value of investments and the income from them may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. For risks relating to specific products, please refer to the relevant documentation for that product.


Do you like this Post?
Yes
No
8 thumbs up
0 thumbs down
Share this post with friends



Vodafone Group Plc (Vodafone) is a telecommunications company. The Company's business is organized into two geographic regions: Europe, and Africa, Middle East and Asia Pacific (AMAP). Its segments include Europe and AMAP. Its Europe segment includes geographic regions, such as Germany, Italy, the United Kingdom, Spain and Other Europe. The Other Europe includes the Netherlands, Portugal, Greece, Hungary and Romania, among others. Its AMAP segment includes India, South Africa, Tanzania, Mozambique, Lesotho, Africa, Turkey, Australia, Egypt, Ghana, Kenya, New Zealand and Qatar, among others. The Company provides a range of services, including voice, messaging and data across mobile and fixed networks. The Company acquires spectrum and licenses to use radio frequencies that deliver mobile services. Its fixed capabilities include cable, fiber and copper networks to enable television, broadband and voice services. more »

LSE Price
228.4p
Change
-0.6%
Mkt Cap (£m)
61,132
P/E (fwd)
35.9
Yield (fwd)
5.2
64

SSE plc is engaged in producing, distributing and supplying electricity and gas, as well as other energy-related services to homes and businesses in Great Britain and Ireland. The Company's segments include Networks, which consists of electricity distribution, electricity transmission and gas distribution; Retail, which consists of energy supply, enterprise and energy-related services, and Wholesale, which consists of energy portfolio management and electricity generation, gas storage and gas production. The Networks segment is engaged in the distribution of electricity to customer premises in the North of Scotland and the South of England. Its Retail segment supplies electricity and gas to residential and business customers in the United Kingdom and Ireland. The Wholesale segment is engaged in the generation of power from renewable and thermal plant in the United Kingdom, Ireland and Europe, and the procurement and optimization of power and gas and other commodity requirements. more »

LSE Price
1514p
Change
-1.8%
Mkt Cap (£m)
15,527
P/E (fwd)
13.2
Yield (fwd)
5.9

BT Group plc is a communications services company. The Company is engaged in selling fixed-voice services, broadband, mobile and television products and services, as well as various communications services ranging from phone and broadband through to managed networked information technology (IT) solutions and cyber security protection. Its segments include BT Global Services, which provides managed networked IT services; BT Business, which provides communications and IT services in the United Kingdom and the Republic of Ireland (RoI); BT Consumer segment, which provides fixed-voice and broadband services; EE, which is a mobile network operator in the United Kingdom and provides mobile and fixed communications services to consumers, businesses, the public sector and the wholesale market; BT Wholesale, which provides services to communications providers (CPs), and Openreach, which provides services, such as copper and fiber connections between its exchanges and homes and businesses. more »

LSE Price
412.85p
Change
-0.4%
Mkt Cap (£m)
41,134
P/E (fwd)
13.4
Yield (fwd)
3.9



  Is Vodafone fundamentally strong or weak? Find out More »


2 Comments on this Article show/hide all

macd2510 31st Oct '12 1 of 2
2

As a follower of DGI (Dividend Growth Investing), this comes both as very timely and very interesting analysis. I'd like to see shareholders (or at least the profiessionals ones like Neil Woodford) pushing this issue with management. Dare I say I'd like to see company legislation if we don't see any action.

I'd also like to see dividends paid quarterly as the skew to an annual large dividend and a smaller annual interim dividend aren't to helpfull if you're investing for income. Lastly... Pay Up Promptly... we're the company owners and it's OUR MONEY!

| Link | Share
Rob Davies 2nd Nov '12 2 of 2

Thanks for the feedback. You are right. It is your money. Contact the companies you invest in and suggest it.

Fund Management: VT Smart Dividend UK Fund
| Link | Share

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter


About Rob Davies

Rob Davies

Rob Davies is the Fund Manager of VT Smart Dividend UK Fund, formerly The Munro Fund.. He worked as a professional geologist in Antarctica and Australia before joining the City as a mining analyst.  From 1999 to 2001 he was a writer at The Motley Fool and in 2002 he joined the Private Client Department of Clydesdale Bank as Senior Investment Analyst where he was responsible for writing and maintaining investment policy, selecting securities and portfolio creation. His experience of the stock market as an equity research analyst, personal finance writer and portfolio construction manager has given him a unique background to draw on in crafting this investment process which he now runs at VT Smart Dividend UK Fund, previously known as The Munro Fund. more »

Follow



Stock Picking Tutorial Centre



Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis
Foliobuilder