Shareholders play the waiting game over dividend payments

Saturday 20 October 2012

The lion's share of investment returns from the stock market are derived from the compounding effect of the reinvestment of dividends.

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Fundamentals Robert Davies

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.

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 have now 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. Vodafone, for example, the largest UK-listed dividend payer, has a March year-end. The annual results, and proposed dividend, were announced this year on May 22, with a payment date for shareholders set for August 1. This is a gap of 71 days, or 123 days since the year-end. For those who hold Vodafone indirectly through funds, such as our 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 – that's the end of May 2013. This is well over two years since the start of the financial year in which Vodafone earned this money. But Vodafone is a faster payer than the majority of the top 25 companies. The average gap between the declaration of the final dividend and its payment is 82 days. This rises to 121 days when measured from the year-end. The range is huge and deserves an explanation. 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 174 days after the financial year-end to be paid, while 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, while 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. The conclusion is that some companies hold on to shareholders' income much longer than others. Paying quarterly dividends is generally a faster way of rewarding shareholders than the traditional semi-annual disbursement. With this in mind the Munro Fund intends to move to quarterly payments. 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.l Robert Davies is managing director of Fundamental Tracker Investment Management in Glasgow, which runs the Munro Fund

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Shareholders play the waiting game over dividend payments

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