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

Wednesday, Oct 31 2012 by
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 when measured from the year-end. The range is huge and deserves an explanation from the companies.

The slowest payers seem to be UK utility companies, who penalise their own domestic customers for late payment and cannot use the excuse of delayed receipt of overseas earnings for the late payment of dividends to their shareholders. SSE’s final dividend took an incredible 174 days after the financial year-end to be paid, whilst Centrica was little better at 165 days. Not far behind were BT and Reckitt Benckiser, at 156 and 152 days respectively. The latter at least has significant overseas earnings which could lead to delays. But this excuse is refuted by the range of companies who manage to reward their shareholders within 12 weeks of their year-end (84 days). These include international companies such as Royal Dutch Shell, AstraZeneca and Unilever, with Barclays achieving less than 11 weeks. A note of caution is required here, as all of these “star performers” except AstraZeneca pay quarterly dividends and these tend to be paid out more efficiently than half-yearly dividends. On average those companies paying a fourth interim dividend released cash about 41 days faster than those paying a final year-end dividend, as measured from the year-end.

Very similar patterns emerged for interim dividends. Interim dividends are nearly always a much smaller payment and tend to be delivered more swiftly. The gap between half-year end and the dividend payment for the average company was 101 days as against 121 days for the final. Payment tended to be much quicker for nearly all companies. SSE’s delay, though, hardly changed and it retained the bottom slot, whilst Aviva, Centrica and Imperial Tobacco were not far behind. Again quarterly payers proved the most efficient.

This analysis takes no consideration of the relative size of the interim payment and its timing in relation to, perhaps, a more tardily paid final dividend. Through the receipt of an interim dividend, shareholders at least receive a share of the year’s earnings before the end of the financial year. We developed a crude measure (“Weighted Payment Days” or WPD) to reflect the offsetting potential of a disproportionately large interim dividend, and potentially its early payment. Both the interim and the final dividend payment date were measured in relation to the mid-year, the point at which the company on average “earns” its full-year profits. Unsurprisingly the same two companies, SSE and Centrica, came out as the slowest on the WPD measure, at 302 days and 290 days respectively.

Those paying quarterly dividends tend to come out best on this measure, though amongst semi-annual payers Tesco performs well on 149 days. The average for the former was 184 days as against 236 days for those paying twice a year. (For simplicity only the second and fourth interims paid by those issuing quarterly dividends have been included in this initial analysis. Adding the two other quarterly payments is unlikely to change the result materially).

The conclusion is that some companies hold onto shareholders income much longer than others. Paying quarterly dividends is generally a faster way of rewarding shareholders than the traditional semi-annual disbursement. By bringing payments forward this should bolster the current yield of 3.9%. If some of the slow-paying companies mentioned above did the same, their shareholders would benefit as well.

About the Author's Fund Management

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VT Maven Smart Dividend UK Fund

The VT Smart Dividend UK Fund, formerly The Munro Dividend Fund seeks to buy the UK market in proportion to the forecast dividend of its constituents and in this way provide the returns of the asset class at lower volatility. ...read more or visit website »


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.

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Vodafone Group Plc (Vodafone) is a mobile communications company which provides services to mobile voice, messaging, data and fixed line. The Company’s money transfer service, M-Pesa, enables people in emerging markets, to send and receive money through a mobile phone. The Company also has products such as international money transfer, savings and loans, salary disbursements and access to insurance products in different markets. Vodafone Red offers consumers and businesses a package with mobile data allowances, unlimited calls and texts, plus cloud and back-up services to secure personal data. Vodafone Cloud allows customers to store their personal digital content, such as contacts, photos and videos in the Vodafone network and to access it on the move from any connected device. Vodafone OneNet integrates landlines and mobiles providing a communication solution. Vodafone Secure Device Manager gives customer a way to manage many of their smart devices. more »

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SSE plc is a United Kingdom-based company engaged in the generation, transmission, distribution and supply of electricity; in the production, storage, distribution and supply of gas, and in other energy-related services. 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 Company supplies electricity and gas to household and business accounts under its brands SSE, Scottish Hydro, Southern Electric, SWALEC and Atlantic in the Great Britain market, and SSE Airtricity in the markets in Northern Ireland and the Republic of Ireland. more »

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BT Group plc is a communications services company. The Company's activities are the provision of fixed-line services, broadband, mobile and television products and services, as well as managed networked information technology (IT) services in both the United Kingdom and across the globe. The Company operates in five segments: BT Global Services, BT Business, BT Consumer, BT Wholesale and Openreach. BT Global Services is engaged in managed networked IT services. BT Business provides communications and IT services in the United Kingdom and the Republic of Ireland (RoI). BT Consumer segment is a provider of fixed-voice and broadband services in the United Kingdom. BT Wholesale provides services in Great Britain to more than 1,400 communications providers (CPs). Openreach provide services, such as copper and fiber connections between its exchanges and homes, and businesses. more »

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  Is Vodafone fundamentally strong or weak? Find out More »

2 Comments on this Article show/hide all

macd2510 31st Oct '12 1 of 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!

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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 Maven Smart Dividend UK Fund
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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 »


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