Understanding Dividend Payments

mcoliver88

Hi All,

I am not new to share dealing, but I am new to the concept of Dividend payments, as I have never held stocks in a company that have paid these out.

I just want to see if my understanding is correct, for this example I am going to use the BT Group.

BT Have announced their Ex-Dividend Date for 9/8/2018 with a payment date of 3/9/2018, which is 10.55p per share.

Question 1: If I was to buy shares in BT now, would I still be entitled to this dividend pay out, as long as I hold the shares until the EX-Dividend date of 9/8/2018?

Question 2: If I was entitled to the shares, am i right in saying If I sell the shares between the Ex date and the payout, I still receive them?

Thanks for the help.

bowlhead99

mcoliver88 wrote: »

I just want to see if my understanding is correct, for this example I am going to use the BT Group.

BT Have announced their Ex-Dividend Date for 9/8/2018 with a payment date of 3/9/2018, which is 10.55p per share.

Question 1: If I was to buy shares in BT now, would I still be entitled to this dividend pay out, as long as I hold the shares until the EX-Dividend date of 9/8/2018?

Yes, if you hold them on 9/8/2018 you will definitely get the 10.55p per share paid to you, because from that point onwards the shares can only be sold *without* the right to the forthcoming dividend. So you could sell them on the 9th or 10th of August or the following week or month or year and you will definitely get the payout in early September.


However the obvious thing to be aware of is that once you get to 9/8/2018 and the shares are trading on the market EXcluding the right to the dividend being paid next month, then they are less attractive to potential buyers, by - all other things being equal - the sum of 10.55p. So if they are worth two quid a share on 8 August, on 9 August they are probably only worth £1.90; you can sell the share for £1.90 and still get the 10p of divs, but nobody wants to pay two quid for the shares any more as suddenly they will not be getting the 10p of divs which was factored into the share being worth £2 the previous day.

As share prices can go up an down a few pence every day, it isn't always obvious that this has happened, but common sense tells you that it does.

Question 2: If I was entitled to the shares, am i right in saying If I sell the shares between the Ex date and the payout, I still receive them?

Yes, if you are entitled to the dividend because you held them before and past the ex-div point, you are definitely going to get the payout, because you can't sell the shares on the stock market WITH the right to the September dividend, because they are only available to be bought or sold on the market EXcluding the right to the dividend. The company has already tallied up who is on the list for the dividend, and you are on the list. So you could sell next day, and no longer be an owner of BT, but still have them owe you that dividend money which gets received in September.

mcoliver88

Thats great @bowlhead99. Thank you very Much.

george4064

Copy and pasted from my post on another thread on the same subject;

I've put together a worked example which should help.

ABC plc announce a dividend of 5p per share, investors who hold shares at the close of play on 1st August 2018 will be eligible for the dividend and payment date is 31st August 2018. Therefore the 2nd August 2018 becomes the ex-dividend date, as this is the first time the shares are trading 'ex-dividend' (i.e. if you buy the shares on the 2nd August 2018 you won't receive the 5p dividend.

1st August 2018 close of play - ABC plc's registrar will look at shareholders at this specific point in time to determine where they need to pay the dividend to and how much to each person (depending on no. of shares they hold).

2nd August 2018 - ex-dividend date because this is the first day the shares are trading without the right to receive the dividend

31st August 2018 - ABC plc will pay the dividend to the shareholders/investment platforms as per their findings earlier in the month (about who to pay and how much etc.)

dividendhero

mcoliver88 wrote: »

Hi All,

I am not new to share dealing, but I am new to the concept of Dividend payments, as I have never held stocks in a company that have paid these out.

.

A dividend virgin eh!!

Most of the long term return from equities is via dividends:beer:

bowlhead99

dividendhero wrote: »

Most of the long term return from equities is via dividends:beer:

Only for certain stocks. The yield of the FTSE Global small cap is currently around 1.8%. The FTSE Global large cap, more like 2.5%. The longer-term yield may be a little higher than this, as stock prices in certain dominant countries within the index are currently at relative highs (by reference to 10-yr earnings etc).

Still, even if you add a bit on and call it 2-3%, that's not much. If you double it, you would get 4-6%. The long term total return of these indexes average significantly more than 4-6%, so it's fair to say that most of the long term returns from equities are not in fact from dividends, but from capital growth. It's generally a misconception that most of a company's return is in the form of dividends.

Some specialist single-stock-market indexes have a higher payout of dividends as a component of total return than the 1.8-2.5% noted above. Such as the UK FTSE All-Share, yielding 3.6%. But that's because of the specific mix of its larger constituents in things like tobacco, big pharma and financials which by their nature are more 'cash cows' throwing off high levels of dividends. The 'average' global index does not have that structural concentration of high-dividend company dominating by market capitalisation.

Reluctantpensioner

For more in depth info watch this: https://www.youtube.com/watch?v=SuV57Og64J8
The whole series is pretty good.