When I first got into investing, my main goal was to put my money into a share (yes, a single share lol) and live off of the dividends. However, life is never that simple and I didn’t end up seeing any sort of dividends being paid for over 4 months! So when do investments actually pay their dividends?
Dividends are typically paid 1-2 times per year. They can also be monthly or quarterly depending on the company’s preference. Usually, a company will issue an ‘interim’ dividend during the year then a ‘final’ dividend around their year end (once they know how much profit they can distribute).
If twice a year just isn’t enough for you – did you know that there are stocks that you can invest into called ‘dividend stocks’ and the main purpose of investing into them is… well, they pay good dividends?
Dividend Stocks
What are Dividend Stocks
As mentioned earlier, dividend stocks are labelled as such because they provide solid dividend payouts on a consistent year-on-year basis.
Dividend Stock companies are typically very well-established businesses that don’t really need to reinvest all of their profit to keep their business growing.
Companies like British American Tobacco (BATS) had a massive dividend yield of 7.47% in the year to December 2020 – do you know how insane that is?
It also looks like they paid out their dividends on a quarterly basis rather than a bi-annually which suits those who want cash returns asap.
Dividend Stocks Table
Just for you guys, here’s a nice bit of research I’ve done – this table shows some FTSE 100 (100 largest listed companies in UK) stocks that pay dividends on a monthly, quarterly and bi-annual basis alongside their respective dividend yields.
The aim of this exercise is just to give you a bit of an idea of what is a high dividend yield and what is about average – PLEASE don’t just invest because the dividend yield looks tasty and it’s on my table.
| Payout Interval | Latest Dividend Yield | |
|---|---|---|
| Auto Trader Group (AUTO) | Annual | 0.5% |
| Barclays (BARC) | Annual | 0.7% |
| Burberry (BRBY) | Annual | 2.2% |
| Coca-Cola HBC (CCH) | Annual | 2.3% |
| HSBC (HSBA) | Annual | 2.8% |
| JD Sports Fashion (JD.) | Annual | 0.2% |
| Lloyds Bank (LLOY) | Annual | 1.6% |
| Rightmove (RMV) | Annual | 0.7% |
| Anglo American (AAL) | Bi-Annual | 2.9% |
| BAE Systems (BA.) | Bi-Annual | 7.7% |
| Diageo (DGE) | Bi-Annual | 2.6% |
| Experian (EXPN) | Bi-Annual | 1.3% |
| Tesco (TSCO) | Bi-Annual | 4.1% |
| Vodafone Group (VOD) | Bi-Annual | 6.02% |
| British American Tobacco (BATS) | Quarterly | 8% |
| GlaxoSmithKline (GSK) | Quarterly | 6% |
| Unilever (ULVR) | Quarterly | 2.9% |
| BT Group (BT.A) | (No Pay-out) | 2.37% |
| Rolls Royce Holdings (RR.) | (No Pay-out) | 0.7% |
As you can see, the dividends are mainly paid out annually or bi-annually and the dividend yield varies massively!
Just for those of you that are wondering what a Dividend Yield is: a dividend expressed as a percentage of a current share price.
Why Don’t All Companies Pay Dividends?
So it’s quite evident to see that not all companies pay the same and BT Group and Rolls Royce in particular didn’t pay out any dividends at all! But there may be a few good reasons for this.
As dividends are paid out of profits (and the accumulated profits from previous years – referred to as Retained Earnings) – the company may just not have enough profit to warrant paying out to shareholders!
If I’m holding shares in a company and they don’t have a great year – would I want them to pay me dividends if they might need those profits to keep the business running for the next year? HELL NO.
As investors, we hold shares in these companies – we essentially own a piece of the business! Now, would it be good business management if the owner sucked the business dry for an immediate payday or would it be better to keep it running so you can earn more dividends in the future?
No dividends? Why do people invest in these companies?
This is actually a great question – ‘if I’m not getting any income from my shares then what’s the point of investing in them?’. Well, it’s actually quite a straightforward answer but there are a few roads it can go down.
Share Growth
As an avid reader of this blog (right? ;)), you’ll know that our ethos is to do solid research, make the investment and hold for the long term for maximum growth. Dividends are just a bonus that we never touch – they are just reinvested to help generate more gains.
If you want to read more about why we reinvest dividends, check out my article ‘At What Point Do Investments Start To Snowball? – it really demonstrates the power of growth investing.
To summarise, investors often opt to invest in a company that has a promising future to get share growth rather than dividends in return.
Rights Issues
Another reason people invest in companies (or invest even MORE into companies) is because they may declare a Rights Issue.
Not many people know what this is and to be honest, neither did I until I sat my accountancy exams. But all they are, are shares that are offered to current shareholders at a discounted price.
This means that you get to buy shares at a lower point than they are actually trading for!
Although this doesn’t actually give you much in terms of share growth or dividends, it keeps shareholders happy because it will provide larger returns in the longer-term.
Bonus Issues
This is essentially the same as a Rights Issue but instead of the shares being offered at a discount, they are just given away for free – how awesome is that!
Summary
To bring this article full circle – dividends are typically paid out once or twice per year. However, as you can see on our table at the top, the amount of dividends paid (dividend yield) varies a lot and some are paid out more frequently or even not at all.
The main reason that companies may choose not to pay dividends is because they want to preserve cash to keep the business running. However, they may declare a rights issue or bonus issue to keep shareholders happy and invested.