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When a dividend is paid the share price falls by roughly the same amount. In essence, your capital has been reduced but you have the difference in your pocket in the form of income, eg the dividend.
The intention of this consolidation is to keep the share price roughly the same as today ( I do not know why but hazard a guess later?) To effect this and erase the drop they give us 15 shares that remain at current price, say £2.40 for example rather than the 19 shares at £1.90 they would have been after the dividend without consolidation.
However, you are not better off because if they did nothing and didn't pay the dividend you would have had 19 shares worth £2.40 each or £46 roughly but you now have 15 worth roughly £36 but you do have the difference of ~ tenner in cash from the 50.3p dividend. Then you have dealing costs to re-employ this capital into the market along with tax costs if outside ISA or SIPP - this is definitely not a bonanza and the press should be hauled over the coals for describing it as such, it gives us shareholders a bad name.
However, it's unlikely the regime will now become more generous moving forward, what is more likely, is they will reduce the overall dividend pot by paying the same pennies (3-4p?)on the share when you had 19 but now on your new 15 shares.
Not sure i've explained very well but all the best.
See the newsfeed. What it doesn’t take into account is the much improved EPS post consolidation. Danger for those investors waiting until after the 11th is the price moves swiftly north. I will be adding more if it falls below 240p
‘ So MS screens for cheap stocks with the best EPS momentum,
with Tesco, Total, LafargeHolcim,
HeidelbergCement, Faurecia, Johnson Matthey,
OMV and Santander cheapest amongst that list.’
Loggy
You have to be on the shareholder register on the 11th Feb. The dividend payment is on or around the 26th Feb
info please I am abit dim. Is the div payed before or after the consol'
If you’re looking short term then it is a gamble holding if buying at this level. (Those liable to pay tax) You would have to hope the sp climbs closer to 2.60.
However, if you are a little forward thinking then buying at this level could be prudent, especially with market sentiment and the pandemic.
TSCO is restructuring debt, reducing pension costs and geared up online and home delivery. Booker will also benefit when hospitality opens up again. Clearly from selling a loss making business in Asia and Poland. Also the GM meeting it is proposed that TSCO can purchase their own shares.
The company are clearly cutting outgoings and looking a little ‘leaner and meaner’
Reduced number of shares after consolidation and a better EPS. Also with a healthy dividend institutions will be looking to invest in ftse companies that will cover their annuity costs.
Good luck to all investors whatever you decide to do.
DYOR as the saying goes...
Cityjambo,
As I described in my own postings a couple of days ago, I find myself in a similar predicament, although at a somewhat smaller scale - my holding of Tesco is significantly smaller than yours. Like your situation, most of my holding was bought in tranches in 2011/2012/2013 at an average of nearly £4, so if I sold now or in the foreseeable future I'd make a capital loss. However, the original buying is now, of course, history.
The special dividend for me will bring a tax charge - how it affects others will of course depend on where they stand wrt the £2,000 nil-rate threshold for this year (assuming they haven't got their shares in an ISA, etc). Also, most will lose a fraction of a share through the consolidation - unless you round-up (or down!) your present holding of the current shares to a multiple of 19.
Whilst you will, indeed, end up with less shares, they're not the same shares as you have now. They are "bigger" - each one represents a bigger fraction of the total company (so hopefully each one entitles you to a bigger share of the company's total profits/dividends).
You mention disposing of shares. As I see it you're *not* disposing of shares (unless you choose to sell), they're being in effect exchanged for "different" shares.
That's how I see it, but maybe I'm wrong!
ATB, Mike.
Sorry . .. I meant INFORMED comments!
Sorry, .... *informed* comments!
cityjambo, I've also got shares that cost over and above some years ago but they're all in my ISA now so they're not liable to dividend tax. I can choose to take the loss and invest the SD elsewhere or, as I understand it, if I reinvest in Tesco then I'll be in roughly the same position as before, allowing for a slight up or down, depending on the old share price when consolidation takes place compared to the price I reinvest at in the new shares. If the latter is lower then surely I and anyone doing this would be in a slightly better position than before? If higher, then yes, a bit worse off but nothing like the difference of the original cost. If I'm wrong feel free anyone to correct me but that's how I understand it from the notices I've received and reading others' more unformed comments.
Very welcome Rosewall, these forums can be useful and show the power of shared experiences. I am always learning from others on various boards, although sometimes they get hijacked, but so far so good with this board.
Let me first say that I wish to keep my Tesco shares. But here is my dilemma, I purchased 25000 at £4.02 some 9 years ago. I feel I am being forced to take a share reduction of 5265 shares in return I will receive a sd of £12732.50 2.42 in my eyes this equates to return of £2.42 per share a loss of £1.60 per share. The dividend allowance of £2000 is already used by the normal dividend therefore I am liable for tax @ 7.5% on £12732.50 of £954.94.
To sum up –??less shares
?? Shares disposed at loss
??To be totally disadvantaged – but have to pay tax for the privilege !!!
?? This can’t be right, somebody tell me I have got this wrong.
Reader61 and SB4132
Many thanks regarding your comments dividend tax and SIPPs. What you say is what I have always thought, it doesn't make any sense to do it any other way. It was just that I could not find anything at all on the gov.uk web site and they are usually very good with their information.
jaffjoon
"I will be better off and so will ALL share holders."
Not true, each shareholder will have to look into their own situation. The use of the word ALL in capitals is wrong.
My personal situation is far better with the deal than not. My shares are in an ISA so I am OK there. I get a chunk of money back that I can invest elsewhere (I know the ones I will be investing in and Stamp Duty, as was, does not apply.) Future dividends should improve as the dividend pot is divided among fewer shares. I continue to own the same proportion of the company as before. The SAYE plan will purchase post consolidated shares at pre consolidated prices - my pennies go further.
So, NOT all shareholders will be worse off. Myself and many of my colleagues will be better off.
Hi jaffjoon. A reason it is defined as a capital return could be this,
https://www.independent.co.uk/news/business/news/tesco-crisis-uk-managing-director-among-four-executives-suspended-after-exposure-accounting-scandal-9749694.html
Still in the minds of all at Tesco and HMRC. A dividend that raises some taxes could be more prudent than a capital return. Tescos becomes more attractive to the large institutional investors, and us retailers could benefit from the long term good sentiment.
If we exclude any tax implication and threshold it would make sense to hold if the SP is below 2.50
Therefore I for one have no choice but to Vote against the proposal since I will be better off and so will ALL share holders. I suggest you give it some thought.
As I have said before, TSCO should have defined it as exactly what it is, namely "Capital Return" and not Dividend. This would have avoided any tax implications.
Also don`t forget there is also an additional "stamp duty" tax to pay when you buy back shares with your dividend of 0.5%.
So this "deal" seems to get better and better by the minute (sarc).... and we are paying additional taxes for no reason at all.
Effectively this is a bureaucratic nuisance which for those outside sipp/isa forces a tax/CGT event.
I cannot see the point, which they have not explained and I'm amazed in a world competing against Lidl/Aldi/Amazon/Ocado they can't find a better use for the cash. It feels like a lazy board to me.
I was holding Tescos in my SIPP and ISA, I am not going to be any better off after the payment, It isn't free money, The number of shares will be reduced in order to maintain a high SP and i would need to reinvest that money to get my holding of shares back, Its all a con.
I have sold my Teco shares in my isa incase the SP drops of the the EX Div date when people will have got the dividend and i might buy in on any drops but i am holding the tesco shares in my SIPP.. Either way, Its 50/50 bet
Might make sense for those holding outside an ISA/sipp to sell now and buy back after the consolidation. This would avoid a divi tax but you may have a capital gain to deal with. If your gain is less than £12k allowance and you are not using this for something else then doing this might make sense.
SIPP is tax free, i've recently had that answered by HL. Drawdown pots are also free I believe, until you start to draw income from them which will be at your rate, eg 20/40/45% .
The net of this is we will have to pay tax at 7.5% or 28% (lower or higher rate taxpayer)on the dividend above £2,000 (don't forget to add in other dividends received in the fy). So outside of ISA/SIPP we have an immediate tax liability however, if you sell your holding after the consolidation then effectively you originally paid more per share so your CGT is less if you are above the yearly limit , £12,300 I believe?
BE WARNED - Ricci is probably going to hammer us all in the budget so I'm expecting dividend tax to rise in line with income tax and CGT to be reduced substantially. The income tax increase won't affect us as the divi is in fy 20/21 tax year but the CGT change will probably affect most of us outside ISA/SIPP envelopes.
Hi Rosewall
Apologies for hijacking your thread, but your question caused me to look at the issue of paying tax on SIPP covered dividends. The following is from expertpensionclaims.co.uk but similar answers came from other sources also.
"4. Are SIPP dividends tax-free?
SIPP dividends are tax-free. For whichever investments enable paid dividends, the income tax paid will be reclaimed by your provider and then returned to your account. "
I hope this helps.
If they had paid down debt or bought back shares to reduce the free float I think this would have had legs towards or beyond 300p. Can't see that now until after the dust settles. Why the need to make it complicated ? I personally do not like consolidations, if you want to reduce shares in the market buy them back(especially when you have billions sitting there doing nothing), don't reduce my holding in the hope the market revalues them positively. I get you still have the same slice of the pie before but that cuts no ice with me !
The more I read the more I am convinced that it is decoy div rather than special div. It is capital distribution. If you acquire TSCO shares today your cost will remain same after taking into account the so called special div. I do not understand why FT calls it bonanza and why investors are rushing to buy the TSCO shares. On 14 Apr 21 final result will be out together with final div, which may be hyped.
Quel
You imply that there are tax benefits from holding dividend producing shares in an ISA or SIPP. I was on the gov.uk web site and noticed this page "https://www.gov.uk/tax-on-dividends". It mentions ISAs but not SIPP. I had a brief look at the Personal Pension pages on the gov.uk site but can't see anything. Is the dividend tax free in a SIPP (I thought it was but can't confirm that).