Collecting Blue-Chip Dividends Every Month

Published in Investing on 17 April 2012

A diverse set of large-caps provides David Kuo a regular income.

"Why does David always sound so cheerful in the morning?" a listener texted Adam Tomlinson, the presenter on BBC Radio York's Breakfast Show.

"Why indeed?" asked Adam as I was in full flow disseminating the day's main business stories to the programme's listeners.

My answer was quite simple. Essentially I see opportunities to collect dividends -- and compound my portfolio further -- from shares whatever the stock market and wider economy are doing.

The flipside to today's economy

As I explained to Adam on the show, yes, today's see-saw FTSE and general economic problems can be worrying. After all, if a business as renowned as Tesco (LSE: TSCO) can issue a sales warning and watch its shares slump 20%, then what chance do other companies have?

Nevertheless, I told Adam there was a flipside to these trying times -- those businesses that remain standing are likely to capitalise on the woes of others, and thus increase their market share, increase their profits... and hopefully increase their share price.

And that, I said, was essentially why I'm still backing Britain's blue chips... and not even the debt crisis in Europe could knock me off my perch!

Year-round dividends

What I didn't have time for on the radio, though, was to explain why my investment strategy is to hold a diversified portfolio of solid companies.

Simply put, this approach helps spread my risk (very important with today's uncertainty) as well as provide a reliable stream of dividends. Consequently, I can count on payouts hitting my ISA account whether the FTSE is going up or down.

Indeed, helping me sound so cheerful to the listeners of BBC Radio York is the fact that my portfolio receives dividends every month of the year. Given all the current economic gloom, knowing I'm set to receive a little extra cash each month from my shares it really does make me smile :-)

That said, I must admit I did not create my monthly dividend flow on purpose, though the end result is perhaps not that surprising when I like to invest in a diversified group of blue chips -- many of which declare quarterly payouts.

Anyway, the latest statement from my broker tells me I receive:

  • Quarterly payments from Barclays (LSE: BARC), Royal Dutch Shell (LSE: RDSB) and Unilever (LSE: ULVR) during March, June, September and December;

  • Quarterly payments from GlaxoSmithKline (LSE: GSK) during January, April, July and October;

  • An interim dividend from BT (LSE: BT-A) during February;

  • A final dividend from British American Tobacco (LSE: BATS) during May;

  • A final dividend from Vodafone (LSE: VOD) during August;

  • An interim dividend from Centrica (LSE: CNA) during November...

  • ...as well as many other payments!

Of course, my dividend income is not divided equally from month to month -- some months I receive six payments and in others I receive just one.

And as I say, I did not purposely build my portfolio around the timing of dividend payments. Indeed, I would never consider a share purely because it paid dividends during certain months. In my view, you should always select investments based on their prospects -- even if that means your dividend income becomes somewhat lumpy.

But the fact is that -- whatever the market is doing from month to month -- I'm in line for regular dividends that I can then reinvest to help compound my portfolio further. I must say, I do like the feeling of having money to reinvest every month -- it means I should always have a little firepower on hand to take advantage of any market falls.

The season for dividends

Still on the subject of reinvesting dividends, I find this time of the year especially exciting.

You see, many large quoted companies report their annual results in February and then distribute their largest dividends of the year during the spring. So the next few months should see me busy enjoying some extra portfolio cash... and then scouring the market to reinvest my divvies!

To put this time of year into perspective, I've scanned through the FTSE 100 and picked out the twenty largest names that pay spring-time dividends. The table below outlines what I found:

ShareDividend typePay dateAmount
(p)
Total value
(£m)
Royal Dutch Shell (LSE: RDSB)Q422 Mar26.71,699
HSBC (LSE: HSBA)Q42 May* 8.811,596
BP (LSE: BP)Q430 Mar5.10969
GlaxoSmithKline (LSE: GSK)Q4 + special12 Apr261,311
British American Tobacco (LSE: BATS)Final3 May88.41,736
Rio Tinto (LSE: RIO)Final12 Apr57.3809
BG (LSE: BG)Final25 May8.19278
AstraZeneca (LSE: AZN)Final19 Mar* 1221,561
Standard Chartered (LSE: STAN)Final15 May* 32.2769
Anglo-American (LSE: AAL)Final26 Apr* 28.9284
Unilever (LSE: ULVR)Q422 Mar18.8241
Barclays (LSE: BARC)Final16 Mar3366
Reckitt Benckiser (LSE: RB)Final31 May70510
Xstrata (LSE: XTA)Final23 May* 17.0510
Prudential (LSE: PRU)Final24 May17.2440
Tullow Oil (LSE: TLW)Final24 May872
Shire (LSE: SHP)Final12 Apr7.9645
Pearson (LSE: PSON)Final4 May28228
Aviva (LSE: AV)Final17 May16465
ARM (LSE: ARM)Final18 May2.0929

(* converted from US dollars)

From these twenty names, I calculate final or fourth-quarter dividends totalling some £14 billion have been or are set to be paid during the spring. Through my various blue-chip holdings, I'm certainly pleased to be in line for a share of that massive payout.

And I expect your portfolio has a claim for part of that £14 billion, too!

That just leaves me hoping the market goes lower in the next few months, to allow us all to take advantage of cheaper prices when we reinvest our spring dividends. I can't wait to tell Adam and the BBC Radio York listeners what I've bought.

> David appears on BBC Radio York's Breakfast Show every Tuesday and works with our team of analysts on our Share Advisor newsletter service. He also owns shares in Barclays, British American Tobacco, BT, Centrica, GlaxoSmithKline, Royal Dutch Shell, Unilever and Vodafone. The Motley Fool owns shares in Tesco.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

goodlifer 17 Apr 2012 , 8:46am

My policy is almost exactly the same as yours.

A point you don't mention is that the lower Footsie flops the better for the likes of you and me'

We get more for our money each month, and with a better yield.

DirtyDollie 17 Apr 2012 , 8:47am

Hi David. Have you considered the cost-averaging benefits of year-round dividends? If you DRIP then it would follow naturally but if you take the cash and then reinvest you could be a bit more clever.

juntan 17 Apr 2012 , 8:47am

simply put: future share prices coming from dividends, + growth of dividends + illusion of price/earning.

TMFMayn 17 Apr 2012 , 9:34am

Hello goodlifer

David has asked me to point out that he did write "That just leaves me hoping the market goes lower in the next few months, to allow us all to take advantage of cheaper prices when we reinvest our spring dividends." He tells me he, like you, hopes the FTSE can flop each month when he reinvests!

Mayn

UrbanDreamer 17 Apr 2012 , 10:37am

If there is any truth (and there is some statistical support) to the phrase "Sell in May...." then spring dividends are a great impetus to researching shares to buy mid to late summer.

eccyman 17 Apr 2012 , 10:44am

Go on Dave, tell us how much you pick up a year in Divis! I get around £13,000 pa....

goodlifer 17 Apr 2012 , 10:50am

Thank you Mayn,
Apologies, speed reading bad.
Down with Footsie!

DirtyDollie
"Take the cash and then reinvest."
Absolutely right.

equitybore 17 Apr 2012 , 11:46am

As an investment trust junkie, there are many that provide quarterly dividends at a healthy level - for example INVESCO High Leveraged, Henderson Far East Income to name but two.

RegDiversify 17 Apr 2012 , 1:27pm

Invest in BLND, ULVR & GSK which pay quarterly dividends and you get a monthly income. Simple!

ProfPAN 17 Apr 2012 , 3:51pm

Sorry if this is a naive question (I'm new to this investing lark) - what is the best way to reinvest dividends? I have a small number of shares outside of an ISA, so the dividend amount when it comes in will not be great & will suffer at the hands of commission when I reinvest. Is there a better way?

rober00 17 Apr 2012 , 4:16pm

equitybore - you too!!

Also Aberdeen Asian Income, Schroder Oriental Income, Shires Income, etc, etc.

DonnyTheTrumpet 17 Apr 2012 , 5:38pm

Surely the shares in the companies fall post dividend payouts ?

goodlifer 17 Apr 2012 , 5:41pm

Hi ProfPAN

FWIW, this is what I do.
I've opened a "regular investment" account.
You've got to commit yourself to a minimum of £25 a month, and on each second Wednesday you can do as many trades as you like for £1.50 each.
You can add what you like to your £25 each month - if there's an upper limit, I haven't reached it yet!

I add my dividend payments each month, together with any spare cash I may happen to have, and normally do just one trade.

Two possible snags:
You've got to make your decision by closing time Tuesday.
You have to pay normal commission if you decide to sell..

swarnag 17 Apr 2012 , 6:13pm

Hi Goodlifer
Which platform do you use? I understand that Halifax now charges £2 per trade in their regular saver.
Swag

goodlifer 17 Apr 2012 , 8:40pm

Hi swarnag,

TD Waterhouse

leftandright 17 Apr 2012 , 8:55pm

PS I use TDW too and they will also reinvest your dividends automatically (straight away) for £1.50

snoekie 17 Apr 2012 , 10:55pm

May is my bumper month, and April was barren, but I am targeting GSK so that might ease that.

Jan-March are lean months, but BP helped eased that.

Now given AstraZ woes, maybe they will drop back again to around £20, when I will endeavour to dive in.

OxonianCambion 18 Apr 2012 , 1:05am

I use TDW to do the same regular investing for my ISA but they don't seem to off all shares or in fact all their funds. I think the latter is simply due to their terrible interface for regular investment and the former probably due to not enough people wanting the shares.

eg. with ITs I could get TEM, SMT, MYI, BTEM and RCP via regular investments but not ABAA, AAS, BRSC, NII or FCS.

My plan to get round this is to drip into a similar OEIC before selling it and buying the relevant IT when I've got a sensible amount.

Personally, I'm uncomfortable paying much more than 0.5% per trade so if I was dealing with values of about £50, I'd use an OEIC the too.

They do let you change you choices as much as you like apart from one day a month. I'm also pretty sure that if you don't have enough cash to fill the orders, there are no bad consequences. (e.g. if you only had one order for £100 of a fund/share and put in £40 a month with £10 a month in dividends, it would only buy every other month.)

Note that as goodlifer mentions, the amount in your direct debit doesn't affect how much you can buy so it's a great way of mopping up dividends.

TMFDragon 18 Apr 2012 , 8:07am

Hi ProfPAN

When I started my portfolio, I also began with a small number of shares. But I quickly realised that I needed to diversify.

My objective was therefore to build out the portfolio by continually adding, adding, adding money to the dividends that was being generated by the existing shares.

Although it is a good idea to reinvest the dividends quickly, there is, at the same time, no urgency until (1) you have identified the right shares to invest in and (2) it makes good economic sense to do so. If you are looking for reliable dividend-paying shares our new newsletter Share Advisor could help.

I believe I have now built myself a perpetual cash-generating machine. It gives me great pleasure to hear those dividends hit my bank account every month. But that hasn’t stopped me from looking out for new shares to invest in because the more cash I generate, the more I can reinvest.

Best regards

David

fedupwithbanks 18 Apr 2012 , 10:12am

I also have DRIPS for those Blue chips that offer it. Only a £1.50 charge to do this.

Fit and forget!

Hannibalis 18 Apr 2012 , 10:28am

Dividends are nice but high-yield shares have been quite unreliable over the last couple of years. One way to reduce your portfolio's volatility and increase yield is to include a proportion of fixed-interest yield, like corporate bonds, PIBS and prefs. For example, a 10% perpetual yield (with the income reinvested) will beat pretty much any dividend share over time, assuming similar risk profiles. But it will also reduce overall volatility.
http://www.the-diy-income-investor.com/2012/04/another-10-yield.html

Demaid 18 Apr 2012 , 10:35am

Most of my portfolio yields well. I collect the divis to buy small caps in small quantities. So AZN buys TRCS.
It's more fun than drip feeds.
apad

clairel69 18 Apr 2012 , 1:00pm

The thing many people miss is £1.5 a trade sounds great, but if you are using DRIP @ 1.50 a shot, that means your dividends need to be BIG before you are throwing away a fortune in fees. People hunt all over for low fee funds, then think a DRIP using £50 of dividends (ie 3% fees) is a bargain.

Assume you have £2500 of a share, yielding 4%, paying 2 installments a year.

That's £50 of dividends, twice a year. On a DRIP costing £1.5, you are effectively paying 3% in fees.

And that's smart?

I figure your dividend needs to be at least £300 a time to make DRIP anything other than a scam...

goodlifer 18 Apr 2012 , 7:48pm

Hi clairel69,
Spot on.

That's one of the reasons I make one heap of all my winnings each month, make it up to £500 or so and make a decent buy if one's available.

Less than £300's daylight robbery.

What do I do if no decent buy's available?

I'll let you know when it happens.

goodlifer 18 Apr 2012 , 8:28pm

Hannibalis

^Dividends are nice but high-yield shares have been quite unreliable over the last couple of years."
Really?

"One way to reduce your portfolio's volatility..."
Why would you want to do that?.

jaizan 18 Apr 2012 , 9:58pm

I cancelled DRIP on the Halifax account when the charge went up to 2%. As if their annual fees were not enough extortion.

cthchris 19 Apr 2012 , 6:10pm

clairl69 and goodlifer

DRIP charges are only usually 1 or 2% of the value of the dividend paid.

iii charges 1% of the value of the dividend paid (capped at £10). So a dividend of say £15 only costs 0.15 + 0.08 (1/2% stamp duty).

Chubby38 16 Jul 2012 , 2:16pm

Folks,
I'm a newbee to investing and this is a great post for clarifying a few things after being advised to open a TD Waterhouse regular invester isa account. I also want to adopt the same type of blue chip portfolio over time & reinvest the divis as mentioned in these posts.

Can you just let me know if the divis that are generated from the s&s investments do not count towards your annual isa allowance when re-invested? Can these divis then be reinvested back through the TD waterhouse DRIPS system?

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