Record plc (LON:REC): A Dividend Delicacy or a Risky Gamble Ahead of Ex-Dividend?

As income investors brace for the upcoming ex-dividend date of Record plc (LON:REC), the question looms: is this a golden opportunity or a trap? With a proposed final dividend of 2.5 pence per share and an ex-dividend date set for July 3, 2025—pending shareholder approval—the stakes are high. Let's dissect the sustainability of Record's dividends, the risks involved, and whether the reward justifies the leap.

Dividend History: A Steady, if Conditional, Payout Machine

Record plc has a history of delivering biannual dividends, with the interim and final payments typically declared in November and June/July, respectively. For the financial year ending March 31, 2025, the final dividend is set for a shareholder vote at the Annual General Meeting (AGM) on July 23. If approved, it will mark the 13th consecutive year of uninterrupted payouts, a record that earns respect.

The dividend cover ratio—earnings per share divided by dividend per share—stands at 2.0, signaling a healthy buffer. This means profits are twice the dividend payout, reducing the risk of cuts unless earnings nosedive. Historically, the company has maintained this balance, even during market volatility.

The Ex-Dividend Date Dilemma: Timing is Everything

Investors must act swiftly to secure the final dividend. The ex-dividend date (July 3) is critical: shares purchased before this date qualify for the payout, while those bought on or after will exclude the dividend. However, two caveats exist:

1. Approval Risk: The dividend hinges on shareholder approval at the AGM. While the board's recommendation suggests confidence, no guarantees exist. If rejected, the ex-dividend date becomes a moot point, and the stock could face a post-AGM sell-off.
2. Price Volatility: Stocks often drop by the dividend amount on the ex-date. For example, in 2024, REC shares fell by ~0.4% on the ex-dividend date (28 November). Investors holding for income must factor this into their strategy.

Forecasted Interim Dividend: A Second Chance in 2025

Even if the final dividend is approved, income investors shouldn't fixate solely on July. The interim dividend for 2025 is forecasted to go ex on 30 November 2025, with a payment date of 20 December. This creates a dual-income opportunity, reinforcing REC's appeal for steady cash flows. However, the interim dividend's ex-date is contingent on the company's performance and another AGM resolution in late 2025.

Risk Factors: Clouds on the Horizon?

While the dividend story is compelling, risks lurk beneath the surface:

1. Approval Uncertainty: Though the board strongly recommends the final dividend, shareholder dissent could disrupt plans. Investors should review the AGM agenda and vote proxy instructions carefully.
2. Earnings Dependence: The 2.0 dividend cover is solid but not unassailable. A material drop in profits—driven by sector-specific challenges or macroeconomic headwinds—could jeopardize payouts.
3. Valuation Sensitivity: With a trailing dividend yield of 8.3%, the stock price already reflects high expectations. A misstep in earnings or a dividend cut could trigger a sharp correction.

The Risk-Reward Equation: Worth the Gamble?

For income-focused investors, the 8.3% yield is tantalizing, especially in a low-interest-rate environment. However, the trade-offs demand scrutiny:

• Bull Case: Approval of the final dividend solidifies REC's reputation as a reliable income generator. The ex-dividend date drop could create a buying opportunity for long-term holders. The interim dividend in November adds further upside.
• Bear Case: A rejected dividend or earnings miss could send the stock plummeting, erasing gains. The narrow margin of safety (2.0 dividend cover) leaves little room for error.

Investment Strategy: Proceed with Precision

1. Approve First, Invest Second: Wait for confirmation of the dividend's approval post-AGM on July 23. Only then should you consider buying ahead of the ex-date.
2. Time the Trade: If approved, enter a position before July 3 to capture the dividend. Monitor the stock's price behavior in the days following the ex-date for potential rebounds.
3. Diversify the Bet: Allocate a small portion of your income portfolio to REC. Pair it with dividend stalwarts in less volatile sectors to balance risk.

Final Verdict: A High-Yield Play, but with Guardrails

Record plc offers a compelling income proposition with an 8.3% yield and a track record of dividend growth. However, the ex-dividend date's timing and the AGM's outcome introduce critical risks. Investors must weigh the allure of high payouts against the potential pitfalls of approval uncertainty and valuation sensitivity.

For aggressive income seekers willing to monitor the AGM and time their trades, REC could be a rewarding addition. For the risk-averse, patience and confirmation of dividend approval are prerequisites.

In short: Approach with caution, but don't dismiss the opportunity.