Dividends are a cash payment to the shareholders of the company. Dividends are usually paid from the regular earnings of a company (i.e. net profit after tax).
The amount of the dividend depends on the company’s earnings & their policy on the proportion of the earnings that is returned to shareholders as a dividend (this is referred to as the pay out ratio).
However, not all companies pay dividends or even have earnings.
Most dividend paying companies on the ASX pay 2 dividends per year.
There are 2 important dates with regard to eligibility & the payment of dividends:
1. The Ex Dividend Date – this is the date that you must be a shareholder in order to be eligible for the upcoming dividend.
2. The Payment Date – this is the date the dividends get paid into your nominated bank account.
Example – ANZ Bank 2013
Earnings Per Share: $2.16
Dividends Per Share: $1.64
Ex dividend on 09/05/2013 & paid $0.73 on 01/07/2013
Ex dividend on 07/11/2013 & $0.91 payable on 16/12/2013
Payout Ratio: 76%
Share Price: $30.96
Cash Dividend Yield: 5.3%
Gross Dividend Yield (inc imputation credits): 7.5%
Why Dividends are important?
When people think of shares they usually think of how much the shares price has risen or fallen. While capital growth is important, it’s the regular dividend stream that gives you cash flow & helps pay the bills. ANZ’s dividend yield of 7.5% makes your bank interest of 3% look fairly lousy.
The other thing to consider is that quality companies tend to increase their dividends over time. For example, ANZ’s full year dividend in 2004 was $1.01 & today it’s $1.64 – an increase of 62%!