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Hi....does anyone else out there think like I do , That when Tesco consolidate our shares to create 50p to hold the share price up when it goes ex divi (for50p).... basically we will be paying for the divi by losing shares to that value ?????
we end up with a yummy 50p cash divi .... but a LOT less shares.
Am I missing something here ??
Have they even said that’s what they intend with the consolidation?
Yes, welcome to real world where you don't get richer by a) a company paying you a dividend or b) a company consolidating your shares.
I really don't understand why this isn't obvious. Lets take an extreme example of a dividend.
Lets say today the market value a share of a company at £100.
Tomorrow the company announces its going to stop trading in a months time, in a months time it will go ex divi and then a little later on pay a dividend of £120 per share. What do you think happens to the share price?... its obviously worth £120/share now up until the ex divi date. so the share price goes up.
So yes, you pay for a dividend out of today's share price.
Ggplyr, I dont think that's the same example Nigella is asking about, they are not going to stop trading???
Its an extreme example to attempt to make a point clear, evidently it failed.
Nigella's point summarised is: "we are paying for our dividend out of the shares"
My point is: "yes you are, and this is not news"
The consolidation is mudding the waters, Nigella’s implication is that after the dividend the value of the shares should be the same as before the dividend. This is incorrect.
I’ll try from a different angle. Do you agree that the value of a business is: all its assets less its liabilities + an assumed value of future earnings?
Once the share goes ex divi the liabilities are £5bn more, so the value of the company is £5bn less.
So yes you the dividend is coming out of the value of the shares.
Thank you
I too was interested in the answer to her questions
If we all knew all the answers there would be no need for chat and that would be a shame
Enjoy the rest of your day
No worries, I'm happy i finally managed to explain it in a way that made sense.
The question seems to get asked at least daily here and no one who asks the question is never convinced of the answer.
I didn't read why they are consolidating the shares, perhaps for people who don't like the idea of she price dropping, but that does just seem to worry people that something untoward is going on.
Maybe the following article may help some shareholders. I think if you are investing on the hope that you can pocket the dividend and sell your shares at the same value then you have to be aware that will not happen. I would suggest hoping for a rise before the 11th Feb and sell into any rise is the best way to return a profit. Not forgetting that it has to rise.
The large trades reported at the close of recent trading suggests institutional money is moving around which is being supported by all the algo trades we see.
Land Securities sold 20 Fenchurch Street in 2017 and presented it's shareholders with the same scenario. The following link together with ggplyr should give a good insight into the SD and consolidation.
https://money.stackexchange.com/questions/85398/as-a-shareholder-what-are-the-pros-and-cons-of-a-share-consolidation-and-return
I found the document from Ferguson (see link below) useful in understanding the special dividend & share consolidation. Based on 51p special dividend and 240p share price, the consolidation works out @ 63 new shares for every 80 old shares held (approx). DYOR, of course...
https://www.fergusonplc.com/content/dam/ferguson/corporate/investors_and_media/Shareholder-centre/AGM/2018/Ferguson%20plc%20Share%20Consolidation%20illustration%202018.pdf
Thank you mpw33cfr and leas for the links, they explain it very well
Some people over the last few days have made it sound like the share price will drop by 51p after ex dividend, which it could but........ who knows
These 2 links make it sound like they are buying your share/s, giving you the money and your holding will be less afterwards! I don't mind that, oh course if you have to pay tax on the money that's a different matter
Thanks everyone
Nigella
No, you are not missing anything. Nor has it been hidden. The special dividend and the share consolidation has been there from the first time the circular was published all those months ago. People have concentrated on the dividend and some were unaware of the consolidation and needed reminding.
Anyone who is not aware of this should really read the RNS and take time to understand it, after all, it is your money. If you don't like it, you can always vote against any relevant resolution at the General Meeting.
As for consolidation, yes, it means fewer shares but it also means higher dividends in the future. We do not know what the ratio will be until the circular is published shortly. One thing I am confident about and that is that it will not be calculated to bring the share price back to £2.40. My view has always been that the ratio will be 5:3 or 5:2.
lots of great feedback . thank you all.I look forward to getting the circular on 25th January, where all will be revealed .
Now here’s a thought not connected to the special dividend but the actual dividend. Something rosewall made me think of when he said the dividend should rise. Now if I remember Tesco pay 50% of their profit as a dividend which was£2Billion ish last year , now this year they have taken a £820 million hit to their profits . So say they make 10% more 2.2 Billion but you take away costs 800m .that means their will be only £700 million versus £1 billion to pay out as a dividend so I think “ I may be wrong the dividend may fall this year or stay put .
@ redbarron
TSCO took a hit with bringing in Covid screening measures but I’m sure the current lockdown will keep sales robust.
Booker doing very well. Bank not so well.
Also a good saving with the pension costs. Cannot see the yield falling but who knows.
Of course that also depends on your avg. buy price.
TRB
What I meant when I said that the dividend will rise was that x shares in circulation will result in y pence per share dividend.
Reduce the number of shares in circulation, the same distributable amount will result in a larger y pence per share.