The Motley Fool

How to Generate a Regular Stream of Dividend Income

When I first began investing, I noticed a pattern: Most of my dividends would come in during May and August. This is because most listed companies had either a December 31 or a March 31 year-end. By the time the Annual General Meeting (AGM) was held (four months after the year-end) and the divided received shareholder approval, it would have been at least five months since each company’s fiscal year end.

So, how can we space out our dividends over the year in order to better manage our cash flow? This is especially important for retirees who rely on dividends for passive income. Expenses such as food, transportation, and utilities are ongoing and need to be paid monthly, so it would definitely be helpful if the cash inflows from dividends could match the time period of payments for said expenses.

Here are two suggestions on how to space out your dividend receipts.

Purchase companies with different fiscal year-ends

One method of smoothing out dividend receipts is to purchase companies with different fiscal year ends. This helps to ensure that dividends are received at different times of the year. Note that some companies also pay an interim dividend that does not require approval at an AGM.

Aside from the usual December and March year-ends, some companies also have June or September year-ends, which means investors can stagger the dividends they receive. There are also some companies with “odd” year-ends such as January 31 or August 31. By including a wide variety of companies with different year-ends, investors can ensure they receive dividends during different times of the year.

Purchase companies that pay out quarterly dividends

Another method of smoothing your dividend stream is to purchase companies that pay quarterly dividends. Quite a few real estate investment trusts (REITs) do this, and this asset class could form a core part of an income investor’s portfolio. Companies able to pay out quarterly dividends are also sending a signal to the market that they have strong positive cash flows and robust balance sheets. This provides additional assurance against the idea that the company might drastically slash its dividend should it encounter tough times.

The Foolish bottom line

Over the years, I have tweaked my own portfolio using the above methods such that I now receive dividends during most of the year. Of course, sizing a position is also important, since this determines the actual quantity of dividends received during a particular period.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.