Dividend Timing – The UK vs. the US

The US and the UK are Different

Well, it doesn’t take a genius to know that we are two countries separated by a common a language… here in the UK, we often make jokes about America and all the things we think are totally crazy about the country… and I know you guys ‘just dig those British accents’ and try to mimic us all the time.

But the differences do extend to many areas of life, and one of our favourite topics, dividends, is no exception. American shares tend to pay dividends every quarter, whereas UK shares usually pay every 6 months. Moreover, US dividends will be split roughly equally throughout the 4 payments, whereas British companies tend to have an ‘interim’ vs. a ‘final’ payment, with the final payment typically being twice as much as the interim.


Why is this?

Well, I don’t actually know! And I even tried to research the answer, to no avail. However, these issues are something to think about if you are investing for income, as you may have quite a wonky inflow of payments if you invest solely in UK shares, due to the interim payment being a lot less than the final payment. There are, in fact, a few British companies that pay quarterly dividends, nine companies according to this article on motley fool.

However, in the ‘accumulation phase’ of investing, it does not matter that much when dividends are paid throughout the year, as it is your goal to accumulate shares, rather than to live off the income (from dividends) provided by shares at this stage.


A Plan

I am hopefully going to live off passive income in the future – preferably long before my state retirement age (currently 67, although I guess it will increase again before then!) arrives. I am planning to do this through earning a combination of active and passive income… with the latter hopefully taking over before the age of 50 (I have a touch over 15 years to go).

I have set a series of financial, as well as general, goals which I hope will help us to achieve financial independence, as a family, over the next 15+ years. At the moment, these are mostly being fulfilled by investing in dividend-paying shares, mostly British ones. Over time, I hope to add other sources of income, such as small businesses, rental properties, and maybe some IP or some other similar kind of recurring payment/royalty streams.



As I am currently accumulating, it doesn’t matter which month the dividends are paid, or that the UK shares pay a 35:65 split payment, especially since I am just going to reinvest the dividends in more shares anyway. But I have been wondering about maybe trying to look for more shares that pay quarterly dividends, and trying to balance them out a bit. If they’re really good ones, after all, I can always add in more shares regularly and then I have a more even cashflow throughout the year.

From a psychological perspective, I really like this, as it makes me feel as though things are running smoothly and I am in control of my money. Money is coming in regularly, and I am able to reinvest regularly. This is similar to my perspective on buying enough shares to get you at least one free share, come dividend payout time. Of course, this is another quirk of the UK vs. US systems, as I have not been able to find a UK broker who will let one accumulate fractional shares (if anyone knows of one, get in touch!).

From a value investing perspective however, this is kind of silly, because I want to buy shares based on whether they are good value, rather than whether they pay dividends in January for example. In the future, I will hopefully be reliant on these passive streams to provide me with a regular income, so perhaps another way of doing it would be to make sure that I set up some kind of ‘buffer account’ from which I pay myself a regular, monthy ‘salary’ so to speak. For example:

  • I pay annual spending amount from my investment account into a current account
  • I set up a monthly transfer of the annual amount divided by 12
  • That will be my ‘salary’

Anything above the annual required amount will get reinvested. If I do not have enough dividends or other passive income arriving, then I cannot do this method. This method is really for when the income exceeds my annual spending needs.


Over to You

Do get in touch and tell me if you have any ideas about smoothing out your cashflow from passive income!


Photo credit: iosphere/freedigitalphotos.net


  1. Hi M,

    I went through similar thoughts when I started investing. At one point I was buying stocks based on the month they paid dividends out so I’d have fairly stable income each month but I no longer do this and I wouldn’t recommend dividend payment date as being a criteria for a stock purchase.

    I would extend that logic to quarterly vs. bi-annual too, although as NMW pointed out the APY with a quarterly payout could be higher because of compounding. But this is only if you could re-invest the dividends which if they’re low may not be possible, and as you point out new money being added is going to over-power any dividend re-investment compounding.

    My original solution to this cash-flow ‘problem’ was to find investment funds that paid out monthly. So I invested in some high-yield bond funds / REIT funds that paid a monthly distribution. I still have a position in VWEHX, but I only hold the REIT fund in my retirement plan as it’s not very tax efficient. I mostly prefer stocks or stock funds now as the dividends are taxed lower in the US.

    For partial shares, possibly mutual funds are a solution for you as you can buy those in various amounts. I have shares in VHDYX which is a low cost index of dividend growth stocks and you might find something similar available to you that’s commission-free. Otherwise for stock purchases you’ll need to accumulate the investment amount until it’s high enough to justify the stock purchase commission / fees.

    For cash-flow I finally reached a solution I’m happy with simply by separating bank accounts. I now have 4 main bank accounts…”income”, “living expenses”, “savings” and “emergency fund”

    The “Income” bank account is where all income is deposited including my pay check and all dividend income. From this account, I transfer a set monthly amount ($3960 – my budget) to the “Living Expenses” account as well as a set amount to my “Savings” account for long term saving goals. My emergency fund is fully funded so I don’t transfer money to it currently.

    The amount I can invest each month is any remaining money e.g. Investment Amount = Pay Check + Dividends – Emergency Fund – Savings – Living Expenses.

    All living expenses are paid out of the “Living Expenses” account, including all credit cards which are automatically paid in full. This is an online account with a ‘reasonable’ interest rate (0.2% going up to 0.65%) compared to my income account at a standard bank which has 0% interest. I try to keep 3 months worth of living expenses in the living expense account as a minimum balance, so if my income stream stopped I’d have 3 months to plan how to panic.

    For dividend income, I simply let any dividends accumulate in the brokerage accounts for the current month and transfer them over at the end of the month – they arrive in my “Income” account the following month when they affect the investment amount.

    Dividend Life recently posted…Net Worth Update – November 2014My Profile

    1. Hi DL, thanks for stopping by.

      Thank you for your really thorough comment! This account setup is a system which looks really logical. It’s clean and simple. I really like and appreciate that when trying to stay organised in every area, not just money. I actually find it really difficult to know what’s going on half the time, because my husband and I do not share accounts, we just transfer money around quite a lot. We have several sub-accounts like ‘car’ and ‘household’, which we transfer set amounts into every month to pay for annual/infrequent expenses like car insurance. It gets a bit confusing at times, and my husband finds it difficult to know exactly where we are each month in the various accounts, because they are linked to my current account, rather than his. I still do not have a good solution for managing all these accounts and sub-accounts…

      But your system is really elegant.

      And I am looking into decent mutual funds now (indexing ones I guess). If I can find a good dividend growth one, I’ll let you know.

      Thanks again for your comment, I really appreciate it.

      1. It’s definitely interesting seeing the different solutions different bloggers have to managing personal finance and what works for different people.

        My gf and I also have separate accounts – she just transfers a fixed amount each month to the “income” account where it gets mixed in with my dividend income & paycheck. I exclude this amount when calculating statistics for my end of month summary posts.

        The Living Expenses account includes sub-categories for almost all our expenses and I track these in Excel (I think her gym membership is the only thing she pays for separately herself) so at any point in time we can look at the Excel file and see how much money is in each category for a given month.

        You can see a breakdown of the categories I use in my post http://dividendlife.com/index.php/my-monthly-budget-20/ if you’re interested.

        Best wishes,
        Dividend Life recently posted…Energy sector dividend stocks – December purchase #1My Profile

        1. Hi DL,

          Thanks for popping by once more. This is a topic I am trying to research a bit about right now, as I, regretfully, managed to get into a little argument with my husband over how we should track things. Not having joint accounts is perhaps part of the contributing factor… but I had asked him if he thought it was a good idea to simplify our spending plan spreadsheet, to which he agreed yes. So I made a simpler version, then he made his version – which was vastly more complex and added in a lot of tracking almost exactly like what you have said you’ve done in Excel.

          However, I find that having one sheet for tracking and separate sheet for planning (the budget) is clearer, as the focus of the sheet is just one thing: tracking, or planning. We already use eeba on a very regular basis (has now changed its name to goodbudget), which will do all our requirements for tracking, so we don’t actually need a separate spreadsheet. I think part of it is setting a process in place, and then just sticking to it. For example, every Sunday night could be a 15 minute weekly review of our spending… we already do a monthly one on payday.

          Have you experimented with any apps to track your spending? How about regular check-ups?


          1. Hi M,

            Yes I use the same file for tracking and planning – one column contains the planned amount; the other columns contain the expenses. I’m very OCD about it all though and track everything to the penny.

            I’ve played around with the Mint app, Mint.com, Check.com and PersonalCapital.com – I’ve not found any budgeting system that suits me, and that includes Quicken’s budget tracking system. I mostly use Quicken for downloading all bank transactions so I can fill out the Excel file.

            The reason why I’ve not found an app that I like for budgeting is really down to credit card spending and how I track it. I book the credit card expense in the month that it’s paid for, not in the month that I made the purchase – e.g. purchases I make on my card before the 17th of the month are actually paid in two months’ time because of the billing cycle. In Quicken the charge shows up across two credit card bills which I find harder to process.

            It gets more complicated as I also use two credit cards (Amex plus a Visa card – not everyone takes Amex) and a third connected credit card that my girlfriend uses for groceries. So in a given month, I may pay expenses in a category by 1 to 4 methods (debit / cheque plus 3 cards). Excel lets me view all the expenses simply (1 method per column) and do all the graphs / calculations to show progress etc.

            As for checkups, I update the spending pretty much every day and the file includes projections for the entire year. I aim to adjust the overall budget about twice a year and will be posting the next one for January soon.

            Best wishes,
            Dividend Life recently posted…My recent UK trip – did we stay on budget?My Profile

          2. Wow, that is kind of complicated. I guess being OCD about things make it kind of a ‘fun’ task to do though… maybe? I am a bit OCD about it too, but I do want to have simple and elegant solutions to most things, whilst retaining the ‘fun’ parts of going through our budget.

            I found that YNAB was best for dealing with using credit cards, and EEBA (now called GoodBudget) was the best app for day to day tracking. We now use EEBA all the time and have given up on YNAB, only because EEBA was free.

            I look forward to more posts form you about how you manage your budget! I really enjoy seeing how people do these things ona daily/weekly basis for practical purposes.


  2. M,

    You say that considering quarterly dividends over the typical European 65/35 dividend is a bit silly, but it actually isn’t.

    1) It’s much easier to have a steady month-to-month cashflow with quarterly stocks.

    2) You’ll be able to more quickly enjoy the effect of compounding since you’ll be able to re-invest the dividends on a much more regular basis.

    I personally prefer quarterly payments, but that doesn’t mean I won’t invest in a great value company if it has only one or two payments each year.

    No More Waffles recently posted…Savings Rate for November 2014My Profile

    1. Hi NMW,

      Thanks for stopping by. Well, I agree that it is a LOT easier and it would be much nicer to have regular quarterly dividends, and I would love to make my cashflow smoother, also because psychologically, I like to see that regular income. However, in the UK, we cannot purchase fractional shares, so sometimes, if you’ve got a particularly high price share, then you wouldn’t be able to reinvest your dividends automatically anyway. This is an annoyance, as we can buy fractional share in mutual funds. So sometimes you’d have to invest several hundred £ to just get one free share upon dividend reinvestment.

      The other thing is, as I mentioned above, at this stage we are in accumulation mode – so we are not taking the dividends as extra income. This means that dividend payment frequency doesn’t matter right now (although as you rightly say, one could earn more due to faster compounding if it were quarterly). Moreover, I think the crucial factor is the quality of the purchase, rather than the month of dividend payment. I want to focus on the value of that share to me as my primary reason for purchase. It’s my vague plan to set up a buffer account from which I withdraw my future income as a monthly ‘salary’ to myself, so that in itself is a workaround.

      Having said all that, all this would only really apply if you invested just in UK stocks, which I don’t as I want an internationally diversified portfolio.


Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge