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Sold the lot £20k, had expected better on divi, made a descent profit. Onwards and upwards.
Hi all,
It's my first-ever post on LSE, so please be kind!
As a reasonably long-term holder of Tesco shares I've read today's RNS, and most of today's posts about it. Most of my comments are from first principles so am open to being corrected if/where I'm wrong. Firstly, what's right or wrong for any individual investor will depend not only on the "before" and "after" share price, but also on their own tax position.
The Tesco share price cannot be totally detached from the broader market. As I write this, the FTSE is down some 22 points (0.3%), which must be a contribution to this morning's slight fall in Tesco. Secondly, the *effect* of what they're doing is a capital reduction, whereas the *mechanism* in this case is a Special Dividend. Thirdly, the trading performance of Tesco in terms of revenue, profit, etc, and therefore its total value, is, as I see it, not affected by whether it has a large number of "small" shares or a smaller number of "bigger" shares. However, presumably doing the consolidation involves Tesco paying someone (investment bank?) a fee, which of course is then money going out of Tesco and being lost to shareholders. To what benefit?
Ultimately no-one can predict exactly what the share price will be immediately before these transactions (Special Dividend and then Consolidation), or immediately after them.
How beneficial, or otherwise, this will all be to any individual shareholder will probably depend on his/her tax situation. In my own case, the large dividend will push the dividends this tax year above the dividend threshold (from memory £2,000) where otherwise it would have been below it (as, this year, so many of my other dividends have been reduced or scrapped). So I will have to pay income tax (7%, from memory) on some of my dividend. If it had been done by other means, I wouldn't have had to pay any tax because this year I'm way below the CGT threshold. Another consideration, which becomes slightly less trivial the smaller one's holding is, is that unless you start with a multiple of 285 "old" shares (15 x 19) you will not end up with an exact number of "new" shares after the consolidation, so you will lose a fraction of a share (the value of all these, Tesco says, will end up going to charity).
I hope I haven't confused things further for anyone!
Mike.
What a confusing load of nonsense, share holders should vote against this ..
By my calculation anything below 240 is a buying opportunity in an isa prior to divi date.
Nigella... Theoretically if I leave the special dividend cash on account in my ISA and share price is exactly the same post-consolidation (240p) my ISA value will be £60 higher. However, in practice, you're right because my intention at the moment is to use the special dividend to restore my original holding and I'll have to pay stamp duty and commission on this transaction.
Not forgetting that approx 4000 shares will not be taxed if you have not used up your annual dividend allowance.
MOSt Private Investors likely have these in a sipp or isa I would reckon by a substantial margin
with price dropping like it is I am going for dividend and hoping in short term price will creep up to £3.00 .
IAPR...you wont be better off or even . because If you take your cash invested 36,000.and divide it by your new reduced holding of 11,842 your break even is up to £3.04... therefore your shares are sitting at a loss , presuming price is £2.40 per share .9as per your calc)
gg
that’s how I see it. Despite them being loss making they were sold at a profit. Getting a little tiresome now but anyone who thinks a couple of directors have got together and called it a dividend must be naive.
The CFO and city accountants have done their due diligence and have used that term because of legal obligations.
Understood...but how are the institutions looking at this I wonder ?
No wonder the sp is dropping. The penny for PI`s has finally dropped since those not holding shares in an ISA or SIPP are taxed on dividends so for no reason at all they are now faced with an unnecessary tax bill. Where as if TSCO had simply called it "Capital Return" and NOT dividend , it would not be taxed. Shame , but there you are.
No wonder the sp is dropping. The penny for PI`s has finally dropped since those not holding shares in an ISA or SIPP are taxed on dividends so for no reason at all they are now faced with an unnecessary tax bill. Where as if TSCO had simply called it "Capital Return" and NOT dividend , it would not be taxed. Shame , but there you are.
Cheers - although i would think return of capital would be paid out of share capital and share premium account. From Vecturas statement of changes in equity for their return of capital it was out of retained earnings.
I feel like you're getting frustrated... I'm just interested in how it works. My small holding is in tesco is in an ISA anyways.
Was the asian business not sold at a profit of the net assets disposed of?
i’m in that exact situation of 1000 shares.
unsure what to do now, sell before and make a small profit (maybe 150 at current price) or hold and get the £500 but lose 211 shares.
https://financial-dictionary.thefreedictionary.com/capital+dividend
billyboy56...8:39 post
Hi,you are correct,we would be slightly worse off by accepting SD whilst keeping current shares that would be consolidated.By doing so there will be reduced number of Tesco shares in issue.Can though anybody be sure that the newly consolidated shares' price will rise by the SD price?i think its a gimmick played by the Company BoDs.Stach
Folks, this is not a special dividend. It is very misleading calling it a dividend. This is returning £4.987bn to shareholders from the asian sale by way of a capital payment/share reduction. Has the same effect as if you went and sold 21% of your existent shares. On the positive side the company paid £2.5bn into its pension scheme so arguably it is a better company now that before. But alas a special dividend windfall it is not.
Any one have the number for Couche-Tard?
If the current share price post-consolidation is exactly the same and we assume it's 240p (for my simple maths). Some will be marginally better off and some marginally worse off. It depends on your fractional entitlement which you will lose as it's being given to a food bank charity.
I will lose 0.105 of a share, but be marginally better off. However if you hold, for example, 1000 shares you will lose nearly half a share and be fractionally worse off.
In my case..
Current holding:
15,000 shares @ 240p = £36.000
Post dividend and consolidation:
15 for every 19 shares = 11,842 shares @ 240p = £28,421
plus 15,000 times @ 50.93p dividend = £ 7,639
Value = £36,060.50
Of course all this assumes the share price will be exactly the same after the ex-dividend date.
I'm a long-term holder in TSCO and will continue to hold, but if I didn't hold my shares in an ISA I'd be very tempted to sell now and buy back post-consolidation to avoid all the unnecessary hassle and tax calculations. I think this is why the shares are under-performing peers at the moment, but should hopefully redress the balance if and when people buy back in. Please DYOR.
Ah thats good then Rosewall
This article goes some way providing and explanation. https://www.investopedia.com/terms/s/specialdividend.asp
PH
If the money had been used to buyback shares in the market for cancellation then that would have had the effect of an upward pressure on the share price
PH
''Which should drive the price up to nearer £3 in the short term.''
The market cap is being reduced by 50.93p per share
Please correct me if I’m wrong.
The share consolidation is reducing the number of shares in circulation by the same amount of the dividend.
There will be 20% less shares in circulation?
Which should drive the price up to nearer £3 in the short term.
Very high level: The value of a company is assets - liabilities + an estimated value of future profits.
What happens when a company pays a dividend... cash decreases i.e the assets go down therefore your market cap goes down. the rest (share consolidation) is just noise. The market will decide what the market cap should be and adjust it very quickly.
Earnings per share will be higher which will or should attract more money from the city. Will be interested if the yield will increase by the percentage number of the share consolidation. A yield of about 4% has to be attractive to any investor especially when all that money is sat in a bank account earning nothing.
I guess those private investors that thought buying in the short term just for the SD will move on and the institutions mop up those shares a little cheaper.