August2nd, 2012

• Bumper first half year dividends

• Company results and dividend announcements

Dear subscriber

First quarter 2012 has been something of a dividend bonanza for dividend investors as Capita Registrars released information that showed that dividends paid in the first half of 2012 have now reached an ‘all-time high”.

At £41.4bn, first half year dividends paid were 21% higher than a year ago and well above the previous high of £34.5bn reported in the first half of 2008. Dividends rose 18.4% in the second quarter to £22.6 billion, with the five biggest payers accounting for 36% of the total – up from 33% in the same period last year.

Between them they paid out £15.1 billion, up from £11.2 billion last year, with Vodafone the single largest contributor, and Royal Dutch Shell, HSBC, GSK and Cairn Energy all in in the top five.

The top 15 dividend payers paid out almost two thirds of all dividends, demonstrating the massive dependence UK investors have on only very few share for their dividend income. Overall, the top 15 accounted for 64% of total dividends paying out £26.3 billion.

The next 85 companies making up the FTSE 100 only contributed another 27% of all dividends paid, while the FTSE 250 companies accounted for just 8% in the first half.

This concentration of huge dividend payments in only a handful of larger companies clearly poses a risk for long-term dividend income investors as a company's specific event can lead to one of the major dividend payers to cut their dividends, or stop it all together, such as in the recent past when Lloyds TSB and BP suspended their dividend payments.

Special dividends totalled £5.9bn during first half 2012

For the first half, special dividends totalled £5.9 billion, almost 2.5 times as much as the £2.3 billion paid in the first half of 2011, including the £1 billion special dividend Old Mutual paid out after its disposal of its Scandinavian interests on top of its £201 million final dividend.

GSK paid out a £277 million special dividend following the sale of its US over-the-counter medicine business, and Antofagasta made a £149 million special payment. While other, smaller, companies also made one-off payments.

Special dividends allow cash-rich companies to alleviate shareholder pressure to increase dividend pay-outs, without committing themselves into enhanced dividend policies going forward that might prove unsustainable, mid-term.

Nevertheless and already substantiated by the following dividend announcements, Capita Registrars has upgraded its full-year 2012 forecast to £78.3 billion in total dividends, which would equate to a year-on-year rise of 15.1%. It also expects this to rise to between £79 billion and £81 billion in 2013.

Company results and dividend announcements

After a slow start, earlier in July, a number of dividend paying companies have released their results, during the last few weeks, including the following dividend announcements:

BAE Systems

In its half year results, BAE Systems reported 10% reduced revenues to £8.3bn, while pre-tax profits dropped to £655m from £691m in 2011. At the same time, BAE has announced a 4% increase in the interim dividend to 7.8 pence, going ex-dividend on 17 October and payable on November 30.

Land Securities

Land Securities, the property REIT, released first quarter figures, two weeks ago. The shares are going ex-dividend on 12 September with payment of 7.4 pence – up 2.8% – due on 12 October.

The dividend pay-out is in the form of a Property Income Distribution. This is a type of dividend exclusive to property REIT shares and from which basic rate tax is deducted at source, unlike normal dividends which suffer no such deduction. The tax is recoverable within an ISA.

British Land

Another REIT, British Land reported on its first quarter. The dividend is set at 6.6 pence – a below inflation rise of just 1.5% over the 6.5 pence paid in the comparative quarter last year – going ex-dividend on 3 October and paid on 9 November. The split between normal and property income distribution will be announced within a couple of days before the shares going ex-dividend.

United Utilities

United Utilities issued a management statement saying that they expect to deliver satisfying underlying performance for the year to 31 March 2013 while reconfirming their dividend growth policy of RPI+2% for the current regulatory period to 2015. The expected dividend for 2013 is 34.1 pence.

Unilever

Unilever released second quarter figures. Accounting in euros, the second quarter dividend will be 24.3¢ converted to 18.92 pence in sterling. The shares are going ex-dividend on 08 August and the dividend is payable on 12 September.

The dividend is 8% up in euros from 22.5¢, compared to last year. However, at the time that converted into a 19.62 pence dividend. With current dividend at 18.92 pence, Pound Sterling investors will receive 3.6% less per share in income due to the deterioration in the exchange rate over the year.

Royal Dutch Shell

Royal Dutch Shell also second quarter figures. Accounting in US dollars, the dividend will be 43¢ going ex-dividend on 8 August and payable on 20 September. The Sterling value of the dividend is to be announced on 3 September.

This latest dividend pay-out is at a below inflation rate increase of just 2.4% on the 42¢ paid last year. Dividend pay-outs for the half year now total 86¢ against 84¢, the same 2.4% rise.

Pearson

Pearson released their half year figures. The dividend will be 15 pence going ex-dividend on 15 August and due on 14 September. This is 7.1% up on last year's 14p – well ahead of inflation.

HSBC Holdings

HSBC Holdings released their half year results. Accounting in US dollars the second quarter dividend will be a same again 9¢ going ex-dividend on 15 August and payable on 4 October. The sterling value will be announced on 24 September. The total dividend pay-out for the half year is 18¢ - the same as last year.

HSBC’s dividend policy is to pay the first three quarters in the same amount with the fourth to be decided according to their annual figures. All things being equal, we can expect 9¢ for the third quarter too.

GSK

GSK released quarterly figures with the news that the second quarter dividend will be 17 pence going ex-dividend on 8 August and payable on 4 October. This is a welcome 6.2% up on the comparative 16p last year beating inflation. The 2012 dividend forecast is 73.8 pence.

British American Tobacco

British American Tobacco released half year results. The interim dividend is up an inflation beating 10.8% at 42.2 pence with the share going ex-dividend on 15 August and payment due on 26 September. The 2012 dividend is predicted at 136.3 pence.

BP

BP released its half year figures. Accounting in US dollars, the second quarter dividend is set at 8¢ going ex-dividend on 8 August and is payable on 25 September. The sterling value will be announced on 11 September.

The dividend is the same amount as the first quarter, making 16¢ for the half year which compares with 14¢ last year, well ahead of inflation with a rise of 14.3% (in dollar terms). Even so, dividend payments remain well below the pre Mexican Gulf spill levels.

AstraZeneca

AstraZeneca released its half year results. This is an another company accounting in US dollars. The dividend announced is 90¢ - up an inflation beating 5.9% from last year's 85¢ - going ex-dividend on 8 August and payable on 10 September.

Due to a favourable move in the exchange rate, the dividend is up 11.9% for Sterling investors, at 58.1 pence, compared to 51.9 pence last year.

Anglo American

Anglo American released its half year results. The dividend announced is up 14.3% at 32¢ going ex-dividend on 15 August and payable on 13 September. The sterling value will be published on 30 August.

Don’t buy too high! Instead maximise your returns

While many of the companies listed above are solid dividend payers, unfortunately, many are also currently nowhere near their historical undervaluation levels when we would regard them as a good long term buy.

We are of the opinion that buying dividend paying shares when they are priced too high will lead to long-term disappointing returns.

At the other hand, selling solid dividend payers in a ‘panic’, when the overall stock market is (temporarily) in a down trend, will generally also disappoint your long-term returns.

Instead, why not join the Dividend Income Investor.com community in order for us to show you how to make better informed long term buy and sell decisions.

Use our unique share valuation service to get the share prices at which many dividend paying companies are historically undervalued and overvalued.

Enter and exit the stock market at the right time while receiving increasing dividends from companies that have been paying dividends for decades and are financially strong.

Till next time

Steven Dotsch
Managing editor
EMAR Publishers
Dividend Income Investor.com
Twitter.com @Investoretire

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