Why should shareholders wait so long for dividends?
What’s the worst late-deal from the Thomson holiday group? It’s dividend. Investors have to wait until October 2010 to receive profits earned 12 months earlier. Compared with a delayed flight, that’s a long wait with no compensation.
TUI, parent group of Thomson and First Choice, is not alone in keeping its shareholders waiting for their rewards. Many FTSE 100 companies preserve their cashflow by delaying payments. Centrica has a 111-day gap between announcing its dividend and posting the cheques, for instance – and that’s on top of the gap between the gas company’s year-end and the results announcement, and the length of the trading period before the year-end.
However, TUI’s 143-day delay on its interim payment beats even Porvair’s 136-day wait. It is also longer than the holiday group’s 121-day delay between announcing its full-year figures and paying the final dividend. But the extended effect for the full-year is that profits TUI started earning in October 2008 were not paid to shareholders until April 2010.
Contrast that with companies that brought forward their payments to beat the 50p UK income tax introduced this year. Some companies even made payments before their trading periods had ended, nevermind before they had added up the figures.
A holiday company clearly has cyclical cashflow – as does a gas group – but that is reflected in profits and can be accommodated in the balance between the interim and final dividend payments. And it is a false argument to say it does not matter if a company pays late so long as shareholders receive regular cheques: investors are always waiting for the increase in their payment.
It also means owners are constantly receiving dividends based on a trading period that finished long ago rather than on something close to current trading. That distorts yields. But perhaps worst, it sends a message from the boardroom that investors – especially private shareholders – are not important.
