October 26th, 2012 / Insight posted in

The finer points of dividend payouts

AM writes: My wife and I owned shares in the company where I worked for four years. The last accounts to May 1998 showed proposed dividends at 0.125p per share. We sold our shares on September 30, 1998 after the directors agreed that dividends due would be paid until the sale. On October 19, 1998 the annual meeting was held to approve the accounts and pay the dividends. Payment was made on November 20. But we did not receive our dividends. The reason given was that the dividends were declared on October 19, 1998. Should we have received dividends for 1997-1998 and 33% dividends for 1998-1999? Are directors using inappropriate terminology by saying dividends were declared on October 19 instead of approved for payment by shareholders?

According to the Companies Act, dividends do not accrue to shareholders based on the period of ownership. Final dividends are paid to shareholders when declared at an annual meeting. Directors propose a dividend prior to the meeting but this does not make the dividends payable. Interim dividends are different. They do not need to be declared at an annual meeting. Directors can declare an interim dividend throughout the year and it is payable when they do. From the information supplied it would seem the dividend declared at the annual meeting was a final dividend and would become due to shareholders on the register at that date, which was after your sale. It is worth checking that when they proposed the final dividend the directors did not also specify a date when all shareholders at that point would qualify for the dividend. Although you may have missed out on the dividend payment, in theory this dividend should have been included in the price you got for your shares. You will need to check your sale agreement to see if this was included.