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How I’d generate a regular stream of dividend income

Many investors rely on dividends to supplement their income or even to completely fund their lifestyle. Regular income may be especially important for retirees who rely on dividends and who have many expenses that need to be paid monthly. Therefore some investors may find it preferable to invest so that their cash inflows from dividends could match the timing of regular payments.

And those investors who do not need to spend every dividend cheque received may consider reinvesting the proceeds. Thanks to the power of compounding, such a strategy means more dividends in the future.

So, how can investors spread out dividend payment dates over the year to better manage their cash flow? Here is how I’d consider spacing out my dividend receipts.

Buy shares that pay out quarterly dividends

While the payment of quarterly dividends is the norm on the other side of the Atlantic, there are also more London-listed securities offering such a steady stream of cash to shareholders.

Many of the quarterly payers in the UK market are investment trusts. But the list also includes FTSE 100 corporate heavyweights like Lloyds Banking Group, GlaxoSmithKline, and Unilever.

Of course, if investors prefer to go down the investment trust route, they still need to do due diligence and base decisions on a range of factors, including their risk appetite. Examples of investment trusts that pay quarterly dividends would be UK Commercial Property REIT, and Personal Assets Trust.

While smaller companies often don’t pay dividends, investors can also find quarterly dividend payers even within the Alternative Investment Market (AIM), such as Jarvis Securities.

One of the reasons companies may decide to pay dividends quarterly is to send a signal to the market that they have robust balance sheets with positive cash flows throughout the year. Many investors may regard it as assurance that a given company would not consider decreasing dividends easily.

Buy shares with different year-ends

Another approach to smoothing the dividend stream would be to purchase companies with different fiscal year-ends. Then investors can better stagger the dividends they receive. 

By having a range of  shares with different year-ends, investors can ensure they receive dividends during different times of the year.

For example, Barratt Developments‘ ex-dividend dates are in April for the interim dividend and October for the final one. Investors would get the dividends in May and November respectively. On the other hand, J Sainsbury‘s ex-dividend dates are in May and November. And the dividend payments occur in July and January.

As a reminder, the record date determines who is on the share register and therefore entitled to the dividend. To ensure you are a shareholder by the record date you need to buy shares at least one day before the ex-dividend date.

And remember, sometimes, a company may also decide to pay a special dividend. Such a declaration may come after a period of particularly strong earnings. 

The Foolish bottom line

There will likely be different factors which influence an investor’s decision to buy into a company that pays dividends. The timing of the dividend payment during the year is only one of them. Over time, investors may quite easily be able to tweak their portfolios so that they receive dividends through much of the year.

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tezcang has GSK covered calls (August 16 expiry) on GSK ADR shares listed on NYSE. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.