Simply Dividends

AJ Bell Shares Magazine

Everything you need to know about dividends (but were afraid to ask)

We outline the basics about dividends from what they actually are to how they can provide a regular income

A dividend is quite simply a portion of a company’s earnings distributed to its investors.

In the UK most companies pay two ordinary dividends per year, one at the half-way stage (the interim or first-half dividend) and one at the end of the year (the final dividend). Some UK firms pay quarterly dividends.

Sometimes, companies will decide to pay a special dividend on a one-off basis if their earnings have been particularly strong or they have sold a business and have no use for the cash themselves.

Investment trusts and funds also pay dividends to investors and they can be half-yearly, quarterly or even in some cases every month.

HOW DO YOU RECEIVE AN ORDINARY DIVIDEND?

To receive a dividend, you need to have a holding in a company, fund or investment trust that pays a dividend to its shareholders.

There are four important dates to keep in mind:

• Declaration date – The day the board of a company, fund or trust reveals its intention to pay a dividend, including the date and the amount per share.
• Ex-dividend date – Investors who own the shares before this date qualify for the upcoming dividend, those who buy the shares after this date and before the payment date are not entitled to the dividend.
• Record date – This is the date the company, fund or trust uses to determine who owns its shares and are therefore entitled to the dividend.
• Payment date – The dividend is dispensed and appears in your account. This is usually around one month after the record date.

In the days leading up to the ex-dividend date, the price of your shares might go up as other investors decide to buy because they also want the dividend.

On the day the stock goes ex-dividend, the share price usually drops by the same amount in order to compensate for the fact that if you buy the shares now you have no right to the dividend (they are ‘ex-rights’, in market parlance).