Dividends

Dividends are a part of a company's profit, passed to its shareholders. The payment per share may vary, as it depends on overall profitability and plans for future expansion. BT's dividends are normally paid twice a year, with final dividends paid in September, and interim dividends in February. Payments for 2009/10 and 2008/09 are:

More dates and payments

The full year dividend for 2008/09 was 6.5 pence per share.

Dividends are the share of a company’s profits that it decides to pay to its shareholders. They are an important part of the return from investing in shares, in addition to any increase in the share price. Companies are under no obligation to pay dividends, but they usually choose to do so because dividends provide an incentive to invest in their shares.

Companies typically keep part of their profits back to expand the business and/or increase their reserves, and will then pay out the rest as a dividend. If companies have good investment opportunities, they will tend to keep more of their profits back for this purpose, reducing the amount available for dividends. So the amount of profit companies make and the alternative uses of its profits will help to determine the dividend.

The level of dividend also depends on the company’s dividend policy. Many large companies - including BT Group - have a ‘progressive’ dividend policy, whereby dividends gradually increase as a percentage of profit, because this is what big institutional investors prefer.

Dividends are usually paid after the half-year and full-year financial results, although some companies pay quarterly. At this time, a company’s board of directors will decide how much to pay per share. At the same time, the ex-dividend date, the record date and the payment date will be announced. The shares entitle the holder to receive a dividend up to the ex-dividend date. (The share price will fall by the amount of the dividend after this date: the shares ‘go ex-dividend’.) The record date is when the company registrar determines who is entitled to receive the dividend: the ‘beneficial owner’. The payment date is the date on which payment of the dividend is made to the beneficial owner.

When shareholders receive their dividend, they get a voucher that shows the dividend paid and a 10% ‘tax credit’. Companies pay the dividend out of profits on which they have already paid, or are due to pay, tax. The tax credit takes account of this. Shareholder can offset the amount of the dividend plus the tax credit against any income tax they are due to pay.