Dividend Delays: Business's Way of Saying 'You Don't Matter'

Last Updated Mar 22, 2010 2:23 PM EDT

Many companies are bringing forward dividends to save their private investors paying the increased UK income tax rate, but some businesses deliberately delay payment. A gap of more than three months between announcing a dividend and dispatching it is standard for some FTSE-100 firms.

Centrica, for instance, will not pay its final dividend until June 16, 2010. That is not only well past April's start of the new 50p tax rate, it is 111 days after the energy company announced the payment. It is almost six months after Centrica ruled off its accounts and means profits earned in January 2009 will not be paid to the company's owners until nearly 18 months later.

Its former sister company, BG, is little better: It has a 105 day gap between announcing its payment and paying it, though it produced its results 20 days before Centrica. Morgan Crucible and Bunzl are two other companies delaying dividends more than 100 days after the announcement and paying out profits made more than 18 months earlier. The Porvair filtration group stretches the lag to 136 days.

Contrast that with mining giant Rio Tinto and the other companies that have brought forward their payment date to precede the start of the tax year (April 6). Many firms are replacing final dividends with second interim payments to beat the deadline rather than wait for shareholder votes.

Financial group Hargreaves Lansdown's year-end is not until June, but it is not only paying its interim dividend before April, it has scheduled a special dividend for the same date to pay out second-half profits before they are earned.

There is nothing exceptional about the late payments from companies such as Centrica and BG -- they are late every year, whether or not there is a tax rise to beat.

So does it matter when they reward their shareholders so long as the dividends come at regular intervals? It does: always being late is not an excuse. Unless dividends are static, like Morgan Crucible's, then shareholders are constantly waiting for their increase. Any chairman who doesn't think it a problem should be asked how they would feel at an 18-month wait for their salary cheque.

There is clearly a cashflow advantage for companies paying dividends late -- and a cashflow disadvantage for shareholders, even without the current year's extra tax burden.

But delay suggests an indifference to private shareholders, reinforcing the view that they are second to institutional investors. And taking more than 100 days to dispatch dividends suggests inefficiency.

The fact that some companies can expedite their payments when tax rates change shows that the registrar companies are capable of acting swiftly. The delay is with the corporate client, and shareholders should not be reticent in asking chairmen at the next annual meetings why they have had to wait for their money.