Awhile back I ran across an article asking whether you should worry about dividend payment dates when constructing a dividend-focused investment portfolio. In short, Evan (the author) was wondering if he should be assembling a collection of stocks that pay dividends evenly throughout each quarter.
In other words, if you spread your investments across stocks that pay their quarterly dividends in Jan/Apr/Jul/Oct, Feb/May/Aug/Nov, and Mar/Jun/Sep/Dec then you’ll receive a steady stream of dividend payments each month. A more recent article on MSN/Money provided a concrete example of this strategy.
While this might sound like an attractive strategy on the surface, I think it’s being shortsighted. Honestly, how difficult is it to look at your income on a quarterly basis and spread it out to cover your needs? It’s hard enough to pick good stocks* without factoring in inconsequential things like the dividend payment date, so don’t bother.
Here’s the deal: It doesn’t matter if your dividend income all comes during a single month each quarter. As long as it’s enough to live on, you should simply stick it in a dedicated bank account and then dribble it out to cover your living expenses in monthly installments. Simple enough.
When you think about it, this is really just an extension of getting paid weekly vs. every two weeks vs. monthly. Should we prefer jobs that provide weekly paychecks because it helps smooth out the distribution of our income? No. You should pick the best job for you and then adjust to the pay schedule.
Likewise, you should select investments that fit your needs and preferences without worrying about silly things like the dividend payment schedule.
*Note: From my perspective, this is all a theoretical discussion as we don’t hold individuals stocks. As I’ve noted elsewhere, we invest in broad-based index mutual funds. As such, our stock dividends are paid out once per quarter. When the time comes, we’ll just do what I said above: divide by three and spread the money across months ourselves.
3 Responses to “Should Dividend Payment Dates Matter?”
I’m going with my instincts maybe, but isn’t your article ignoring the Time Value of Money? Or was this article more for the people who have millions in stocks and they don’t care if they grow their portfolio anymore? If I get dividends in January, I’m going to put it to work right away. If I wait to June for all my dividends, I’m months behind, and possibly missing opportunity to invest in other growth stocks that pay dividends somewhere between January and June, therefore increasing my portfolio.
I am decades away before it matters, but there is something psychologically rewarding for most people to get “paid” monthly instead of huge chunks every 3 quarters.
I agree with the general sentiment that it shouldn’t be the driver but it could be a very nice side planning strategy.
I wouldn’t worry about the specific dates. You should focus on buying good companies. What day they pay dividend on should not impact your stock buying choices. You shouldn’t be trying to live ‘paycheck to paycheck’ off dividends.