Dividends are how companies distribute their profits to shareholders. For investors who desire an income from their investments (such as dividend growth investors), this is the most important part of stock-market returns.
You might have many questions about the timing of dividends.
- When are dividends paid?
- Do all companies pay at the same time?
- How often do companies pay dividends?
- Do companies stick to the same schedule year after year?
This article is a companion piece to our guide on how to invest in shares which is a key article in our free investing courses. We’ll explore all these questions about dividend timing, to help you understand when your investments will pay you the income you have earned!
1 – Do all companies pay dividends at the same time?
Companies declare dividends in official press releases or reports and financial statements.
When dividends are paid is totally at the discretion of the company, and therefore timings will vary from company to company.
This means that some shares will be suited for income-hungry investors, whereas some companies don’t even attempt to cater towards this investor group.
2 – How frequently do companies pay dividends?
Dividend frequency is also at the discretion of management. Some companies pay dividends every quarter.
Mature and diversified conglomerates enjoy stable cash flows and can manage this steady stream of outflows better, as they are able to reliably forecast their cash flow.
Another common pattern is for a business to pay an interim dividend half way through the year, and a final dividend at the end. The interim dividend is usually less than half of the total amount. This is management exercising caution as they can’t be sure of how profitable the second half will be.
Other companies pay once a year, and some pay no dividends at all. Start-ups and high growth companies prefer to retain any profits to reinvest in their operations to achieve the largest scale as quickly as possible.
3 – When are dividends paid?
As the best dividend investing books will explain; the earnings and dividend announcement will include the ‘ex-dividend date’. This date represents the cut-off point which fixes the shareholder register at a point in time. Shareholders on the register at that date will receive the dividend.
As an illustration; if the ex-dividend date is set as 23 March 2020, then typically an investor who acquires shares on 23 March 2020 or later will not receive the dividend. Instead, the dividend will be sent to the registered owner who owned the shares previously.
Precise timings vary from country to country, for example in some countries a shareholder must have owned the shares two days before the ex-dividend date to receive a dividend. Check your local stock exchange rules online.
4 – Do companies pay dividends on the same timetable each year?
Established listed businesses like to deliver predictable results, and predictable returns to their investors. A steadier company is one that will suit more risk appetites – and will enjoy a higher valuation for every pound of earnings they generate.
Therefore management teams will aim to maintain a dividend schedule each year.
- The company suffers a period of poor performance
- The company merges with, is bought by, or acquires another business
- The company matures
But these are generally infrequent events.
Here are some other useful share investment questions I have answered in other posts:
- How NOT to pick shares
- 10 Shocking common mistakes new investors make
- How to research share prices and company info
If you have a question about investing in shares or building a share portfolio – leave a comment below and I’ll create an article tailored to your preferred topic.