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Interim & final dividends split over two financial years?

Melanie
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Interim & final dividends split over two financial years?

#139707

Postby Melanie » May 17th, 2018, 9:36 pm

Hi all, sorry if this is in the wrong place!

Can any of you shed some light on why the following happens?

I was looking at Morrisons dividend dates earlier and found that the interim payment gets paid in one financial year, but the final dividend gets paid in the following financial year, eg. Morrisons financial year ended this year on 04/02/18. The interim payment was made on 06/11/17 (so within the same financial year of 2017/18), but the final dividend will be paid 28/06/18, being in the 2018/19 financial year.

http://www.hl.co.uk/shares/shares-search-results/m/morrison-wm-supermarkets-ordinary-10p/dividends

In my mind, it would make sense to have the interim and final dividends paid within the same financial year........or am I missing something?!

Is there any logical reason behind this does anyone know?

Kind regards,

Mel

tjh290633
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Re: Interim & final dividends split over two financial years?

#139709

Postby tjh290633 » May 17th, 2018, 9:45 pm

The only way to get your wish is for companies to organise their affairs, so that their own financial year ends well before the end of the government's fiscal year, in order that they can pay both their dividends in the same fiscal year.

Many companies use the calendar year, but very few declare and pay their final dividend before the end of the fiscal year. It has been done, sometimes by paying a second interim in place of the final, but more pay their finals in April or May than do it in March.

TJH

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Re: Interim & final dividends split over two financial years?

#139713

Postby Dod101 » May 17th, 2018, 9:53 pm

Yes, it is perfectly logical, although I think it depends on what you mean by financial year. The company will have a financial year and it could be any time but usually a quarter end, maybe 31 March, 30 June and so on. The usual one is 31 December. Anyway many companies have an interim dividend and a final dividend although it is quite common for companies to make quarterly payments these days. The interim is usually paid after the first six months of the year is completed and they make an interim report and based on these results will declare an interim dividend. This will usually be paid in say August/September for a company with a December year end. Then the accounts are finalised to December and the Directors decide what dividend to recommend at the AGM. They cannot do this until they see the final results, obviously in the next year and so the final dividend cannot be paid until maybe April/May of the following year.

TJH is I think assuming that you mean the Government's financial year but I do not know if that is what you mean.

Dod

Melanie
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Re: Interim & final dividends split over two financial years?

#139746

Postby Melanie » May 18th, 2018, 7:45 am

Dod101 wrote:
TJH is I think assuming that you mean the Government's financial year but I do not know if that is what you mean.

Dod



I was referring to Morrisons own financial year.

"Morrisons financial year ended this year on 04/02/18"

Thanks for explaining though! :)

Mel

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Re: Interim & final dividends split over two financial years?

#139748

Postby Lootman » May 18th, 2018, 7:54 am

tjh290633 wrote:The only way to get your wish is for companies to organise their affairs, so that their own financial year ends well before the end of the government's fiscal year, in order that they can pay both their dividends in the same fiscal year.

Many companies use the calendar year, but very few declare and pay their final dividend before the end of the fiscal year. It has been done, sometimes by paying a second interim in place of the final, but more pay their finals in April or May than do it in March.

A more fundamental question might be why does it have to relate to the financial year at all? For example US companies typically pay out four dividends per calendar year, each one being an equal amount. If a company raises its dividend, then that typically applies for the next four quarters.

The biggest UK companies, with a large US investor base, will sometimes follow that practice. The whole interim/final system of payouts strikes me as rather archaic. Again, payout dates are much more predictable in the US, and there isn't the lengthy and variable wait between announcement and payment like there is in the UK.

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Re: Interim & final dividends split over two financial years?

#139756

Postby Dod101 » May 18th, 2018, 8:21 am

I suppose it depends how predictable cash flow and profits are and many of our bigger companies now make equal quarterly payments although usually the final one will be larger. It does not matter to me just as long as they pay a dividend.

Dod

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Re: Interim & final dividends split over two financial years?

#139763

Postby Raptor » May 18th, 2018, 8:33 am

Moderator Message:
As this is not a specific HY post and moving from HY Strategies . Raptor.

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Re: Interim & final dividends split over two financial years?

#139769

Postby PeterGray » May 18th, 2018, 8:54 am

Surely final dividends are always paid out in the next financial year? I don't see how you can really pay a final dividend for a financial year until it's complete? Whereas you would expect an interim to be paid during the year.

Peter

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Re: Interim & final dividends split over two financial years?

#139779

Postby tjh290633 » May 18th, 2018, 9:59 am

PeterGray wrote:Surely final dividends are always paid out in the next financial year? I don't see how you can really pay a final dividend for a financial year until it's complete? Whereas you would expect an interim to be paid during the year.

Peter

You are quite correct that finals are always paid during the company's next financial year. In my post above, viewtopic.php?p=139709#p139709 I used "fiscal year" to differentiate between the government financial year and that of the company.

The final has to be approved at the AGM, which can only be held some time after the end of the company's financial year, but some companies, like AZN and BLND, pay interim dividends and no actual final.

Company year ends often have an historical reason. Sometimes they are changed, as was done by TATE about the turn of the century, leading to 3 dividends in their extended accounting period.

TJH

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Re: Interim & final dividends split over two financial years?

#139810

Postby PeterGray » May 18th, 2018, 12:11 pm

You are quite correct that finals are always paid during the company's next financial year. In my post above, viewtopic.php?p=139709#p139709 I used "fiscal year" to differentiate between the government financial year and that of the company.

Yes, I understood your point, but the initial post asked about Morrison's financial year and dividend payments - it was that I was responding too - late I know but the point didn't seem to have been made earlier in the thread.

Peter

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Re: Interim & final dividends split over two financial years?

#139883

Postby Gengulphus » May 18th, 2018, 5:55 pm

Melanie wrote:I was looking at Morrisons dividend dates earlier and found that the interim payment gets paid in one financial year, but the final dividend gets paid in the following financial year, eg. Morrisons financial year ended this year on 04/02/18. The interim payment was made on 06/11/17 (so within the same financial year of 2017/18), but the final dividend will be paid 28/06/18, being in the 2018/19 financial year.

Legal/regulatory requirements. A final dividend for a company financial year has to be approved by shareholders (by passing a resolution to pay it at a general meeting of the company), and they need to be given the company's audited accounts for that year so that they can judge whether it's affordable (*). So after the end of the company financial year, the following steps need to happen in order:

  1. its accounts for that financial year need to be finalised and audited;
  2. the directors need to decide on the amount of the dividend in the light of the accounts and meet to resolve that they'll put it to shareholders;
  3. its annual report containing those accounts needs to be produced and sent to shareholders, along with details of when and where the general meeting (practically always the company's AGM) is going to happen and what the resolutions to be considered at it are;
  4. the legally-required notice period for the general meeting has to elapse;
  5. the general meeting has to take place and the resolution be passed;
  6. the dividend be paid.
This all takes time - typically totalling 4-6 months - and so companies typically pay their final dividends for a financial year between 4 and 6 months after the end of that year. So companies with December 31st year ends (the most common date) typically pay their final dividends in May or June, and those with March 31st year ends (the second most common date) typically pay theirs in August or September.

Interim dividends are simpler, as they don't need shareholder approval - the directors just need to decide what they will be and meet to resolve to pay them. They still need to have the accounts for the half year available, so that they have something on which to base the decision about its amount, but those accounts don't need to be audited (and usually aren't). Together, the lack of a need for a general meeting and for auditing typically cut around a month and a half out of the schedule, so that interim dividends are typically paid 2.5-4.5 months after the end of the half-year. They might however pay them more slowly than that in order to even out the gaps between payments, presumably because (if left alone) those delays would typically result in about a 4.5 month gap from a final to the next year's interim, followed by about a 7.5 month gap to that year's final. Most companies don't appear to worry about that, but some do: for example, Aviva does appear to even its payment gaps out, with interims paid mid-November and finals mid-May.

A few companies also even things out by paying a second interim dividend and then paying no final dividend - that's enough to avoid the rule that says a final dividend requires shareholder approval. For example, AstraZeneca do that regularly, and rather more do it when dividends are becoming more heavily taxed if they can get the dividend paid before the taxation change by making it a second interim but cannot by making it a final (that typically happens when a company has a December 31st year end and the taxation change is coming in at the start of the tax year on the following April 6th).

Anyway, the upshot is that interim dividends cannot realistically be paid until the second half of the company's financial year, and final dividends cannot realistically be paid until the first half of the company's next financial year, so that they naturally end up in different company financial years. They could both be put into the company's next financial year by making the payment delay for an interim dividend be more than 6 months, but I doubt that shareholders would be very keen on artificially making the payment delay that much longer than it needs to be!

If you're talking about the interim and final being split between different tax years rather than different company financial years, the typical delays make that happen for companies with December 31st and March 31st financial year ends. It might not happen for companies with other financial years - for instance, Marston's uses a financial year that ends in late September/early October (it's not quite fixed because they actually use 52-week financial 'years' with an occasional 53-week one thrown in to prevent their financial year end drifting far from the end of Q3) and that makes it end up paying its interim and final dividends in the same tax year.

One final comment is that you may well not recognise some aspects of the above, never having the companies you're invested in send you their annual report, notice of AGM, etc. The reason for that will be that you're holding the shares in a nominee account (which all ISA share accounts have to be, and the vast majority of ordinary share dealing accounts also are in practice). In a nominee account, you're not the registered legal owner of the shares - instead, your broker's nominee company is. You're still entitled to all the financial benefits from them - you're their "beneficial owner" and the broker's nominee company is basically just acting as a trustee - but the company doesn't necessarily know you even exist and if it doesn't, it obviously cannot communicate with you, only with the nominee company.

That's not bound to happen - many companies operate systems that allow people other than registered shareholders to put their names on the list to be sent electronic copies of annual reports, notices of AGMs, etc, and some seem to actively seek out such details of shareholders who hold their shares in nominee accounts. But to get on to such a list, you basically have to either put your name on to such a list yourself, or have a company that actively seeks such details out and a broker who co-operates with the company - so it's not bound to happen!

(*) Which by the way doesn't mean that I think many shareholders actually try to judge whether it's affordable - certainly I've never seen an AGM resolution to pay a final dividend voted down (so maybe it happens, but if so, only very rarely). I suspect the general attitude is more "well, if it's affordable, no problem, otherwise, the company is in trouble and we might as well get as much out of it as we can"...

Gengulphus

Melanie
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Re: Interim & final dividends split over two financial years?

#140182

Postby Melanie » May 20th, 2018, 5:21 pm

Gengulphus wrote:Legal/regulatory requirements. A final dividend....

Many thanks, again. M & M


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