One of the most important things for new investors to learn about is the ex-dividend date. Put simply, buying shares in a company at least one day before this date will ensure that you receive the dividend. Those buying shares on or after the ex-dividend date won't be entitled to the payout. With this in mind, let's look at a couple of companies whose ex-dividend dates fall tomorrow (19 May). If either appeal, you'll need to act quick.
The only way is up?
With the oil price climbing to its highest level in six months, things are at last starting to look a little rosier for Royal Dutch Shell (LSE:RDSB). This, coupled with the fact that Shell has cut back on capital spending suggests that the company's eye-popping yield of 7.2% is safe for now. After all, the less cash it pumps into costly projects, the more resources it has available to pay loyal investors.
Assuming the oil price continues to recover, the price of Shell's shares should also increase as investors begin to view the company in a more positive light. While dividends are great for investors, an even better situation is one in which dependable and realistic payouts combine with a healthy rise in a share's price. Back in January, Shell's shares were priced as low as 1,277p. Today, they're 1,751p. This recovery is likely to persist so long as supply levels continue to drop.
That said, investing in energy stocks may be unappealing to those wanting dependable income from their investments. As such, it makes sense to look at members of the FTSE100 index whose prospects don't depend on the price of black gold to the same extent.
Delivering the goods
Bunzl (LSE:BNZL) is a very different beast. The £7bn cap cruises along the FTSE100 highway, seemingly able to avoid most of the obstacles that others run into. Indeed, if you're looking for a business that offers excitement, Bunzl is unlikely to deliver. Its relatively simple business of outsourcing and distributing everyday items such as cleaning products and food packaging to businesses is about as safe as they come.
Trouble is, Bunzl's yield is unlikely to excite investors either. At just under 2%, this payout is dwarfed by that offered by Shell. Then again, we're talking about a dividend that has grown consistently over the years and is easily covered by the company's earnings. So as long as a market exists for the everyday items Bunzl deals in, there seems little reason to doubt that the payout can be sustained and continue to grow over time. A defensive stock par excellence, some might say.
A word of caution
While dividend investing is a proven and effective way of building your wealth, private investors should never buy a company's shares just for the income they generate. If a dividend looks too good to be true, it usually is. When a company runs into trouble, the dividend is often among the first things to be sacrificed. So in addition to looking at the yield, it's vital to question a company's ability to sustain and hopefully grow that dividend over time. If future prospects look bleak, private investors may be better off ignoring the ex-dividend date and looking elsewhere.
Investing doesn't need to be complicated. Buying shares in solid companies and reinvesting the income they generate is a tried and trusted approach used by many. Indeed, it's just one of the tips covered in a great report prepared by the Motley Fool. If you're new to investing, make sure you read 10 steps to making a million in the market before doing anything else.
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Paul Summers owns shares in Bunzl and Royal Dutch Shell. Motley Fool UK has recommended shares in Royal Dutch Shell. We Fools don't all hold the same views but we all believe that considering a diverse range of insights makes us better investors.