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Thanks Mike and others for responding and its great to see a poster board used as a benefit and to give insight to others. I think I now understand but what is also clear is that depending on share price, consolidation, market factors on the day and subsequent days no one can say in the short term if we will be better off pre ex div day to post. Why they could not simply pay a special dividend with out the strings like other companies is beyond my understanding. Thanks again to all.
Some people have mentioned the Aviva Share Consolidation. It sounds like they went ahead with it (100 shares into 75) *and* on top of that the SP fell off a cliff on the consolidation date (16th May). Unless I'm reading it wrong, investors ended up with 25% fewer shares and a 35% drop in the Share Price.
Hi Janus1,
You ask:-
"If the payment does not impact on the share price due to consolidation how do you end up with less value in the shares? Sorry to ask but this is really perplexing me.".
In simple terms, because you end up with less shares (at the same price per share) than you started with.
Using hypothetical numbers to make it clearer, if you started with 14,000 shares and the share price was £2-00, your shares would be worth £28,000.
If they then paid a big dividend of 14.2857p per (old) share, you'd have about £2,000 cash from the dividend.
If they then did a 13-for-14 consolidation to get to get the share price back up to £2-00, you'd now only have 13,000 new shares with the price of £2-00, ie £26,000.
Instead of £28,000 worth of shares, you'd now just have £26,000 worth of shares, but plus £2,000 of cash.
I hope that helps.
Mike.
Hi MikeS02,
Thanks, and no problem.
I don't feel stitched-up with the proposals in any big way, and personally found their explanation and rationale pretty clear and sensible. However, with consolidations in general, I feel a few little gripes at a practical level for what more-experienced investors than me call simply a "cosmetic" exercise. I don't understand why there's so much importance attached to keeping the share price looking the same - surely it's easy enough with modern IT systems for the consolidation to be factored in to qualify the history of the share price. Cynically, maybe something to do with the way directors' remuneration criteria are worded...
At a practical level, some gripes are:-
(i) If, like me, you like your shares in "round" numbers, it will cost you a broker/platform fee to buy some more to get yourself back up to a round number, as well as stamp duty and the dealing "spread".
(ii) Fractional entitlements, depending on exactly how the document is worded, are not a big issue for large holders, but if you don't get the cash for the fractional entitlement back, it's more of a nuisance for a small holder. If you owned 14,000 shares and it just went to 13,000 new shares, there's no problem, but if you owned 15 shares and it got consolidated to 13 new shares plus fractional entitlement of .928 share, and you didn't get the cash equivalent of the .928 share back, you might be a bit miffed!
(iii) Presumably (and I'm speaking from ignorance here), NWG have to pay an external organisation some sort of fee for "doing" the consolidation. That fee is then money lost to NWG and thence to its shareholders.
Rgds, Mike.
Tarzansbrother - spot on - in fact after the consolidation and just for ref, the shares in circulation will decrease from the current c10.4 Billion to c9.65 Billion and clearly great news going forwards for future divi payments etc. Indeed with future buy backs direct from the government in the next two years pretty much nailed on and ahead of the next GE, we could be in a position into early 2024, where there's c8 Billion shares in circulation and how good would that be!!
Isn’t it also a win win with the fact there will be less shares on the market as shares are being cancelled and I would imagine many share holders will rebuy shares with both the dividend payouts - hopefully that may increase the price aswell as many more buys
Hi MikeM14,
wonder if you could clarify one point. I understood everything up to the point of where you said 'You end up with less value in your shares, but more cash via the dividends.'
If the payment does not impact on the share price due to consolidation how do you end up with less value in the shares? Sorry to ask but this is really perplexing me.
Hi Mike, Many thanks for the update and makes total sense. Have to admit to feeling a 'little' stitched up with this one and not really convinced by the rationale quoted by the bank for doing it this way - but hey, in the scheme of things it 'is what it is'! And whilst I and many others could register a no vote, you have to think that the group took soundings from its major investors before this route and as such, it feels like a done deal
Hi Fonzius,
I'd like to think that I am not asleep, despite the heat!
I've read today's RNS announcement, but not yet the full document. In effect I think you are right - this is a "zero-sum game". As the per-share amount of the ordinary dividend, and of the special dividend, are fixed, as previously announced, and as the consolidation ratio is now fixed, the only variable is the market price of the shares, which of course can change continuously all the time the markets are open.
If there were no consolidation, the share price would, all else being equal, fall slightly when it goes ex-dividend for the ordinary dividend, and fall quite a lot more when it goes ex-dividend for the (larger) special dividend. Broadly the aim with the consolidation is to restore the share price back up to what it had been if there hadn't been a special dividend. You end up with less value in your shares, but more cash via the dividends.
The thing as a private investor to watch out for is that the large dividend payment(s) is potentially taxable as income if your shares aren't held in an ISA - in effect you're being taxed to get some of your own money back! I got caught out with Tesco last year with a similar situation, but I'm not going to let it happen again - my NWG shares are in an ISA.
I hope that helps.
Mike.
https://investors.natwestgroup.com/regulatory-news/company-announcements
I thought that there would be plenty views and explanations of the share consolidation now that the RNS is out, is everyone here still asleep?
I am having problems trying to work out the cost of this scheme for ordinary shareholders, and how NWG are paying monies to shareholders. It appears on first reading of the RNS that shareholders are basically paying their own special dividend by losing 1/14th of their shareholding.
Any views?