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Actually I saw an oblique connection with the discussion on SIPPS/ISAS as LGEN is precisely the type of high yielding and relatively stable stock I would wish to keep long term and free of dividend tax in a tax free wrapper. So , in my view , discussion on the type of wrapper to shield the relatively high dividends of LGEN from tax at 20, 32 or 38% is not necessarily inappropriate.

Meconopsis. I generally agree with your analysis but your statement “If you’re a basic rate tax payer the. The ISA wins” doesn’t ring true to me for a SIPP, so I did some elementary calculations to check this. I think Zack is correct.

Suppose you want to invest £10000 of your untaxed (gross) income into a SIPP, or the equivalent taxed income into an ISA, and assume the invested money will compound at 10% for 10 years.

The cash into the SIPP is tax free so £10000 will compound to £25937 (10000*1.1exp10). If this is taxed at 20% it will give £20750 which is (35937*0.8). But you can take out 25% tax free so you will get €22047 which is (25837*(0.25+0.75*0.8). If you have to pay 40% tax on the pension you will net £18156.

Now contrast this with an ISA where the investment is made out of taxed income. You pay 20% on your £10000 gross income leaving £8000 to invest in your ISA. This will compound to £20750 and is tax free on withdrawal.

The conclusions I draw from these calculations is:

For a 20% tax payer there is no difference between a ISA and a SIPP if the 25% tax free sum is not taken into account (both giving £ 20750). This is logical and is the same situation for a 40% taxpayer.

But when taking into account the 25% tax break, the SIPP will always win because of this tax break, but only if the tax paid on the proceeds are equal or less than the tax rate on initially investing.

So to me SIPP is always the better financial option if your tax rate on the pension is equal or lower than the tax rate when the investment is made. If the tax rate on the pension is higher, be aware.

Chamberslain2 - I guess many of us are pondering the best way forward as to how to respond the the threat of tax rises in CGT and IHT. Personally I think it is difficult to second guess how taxes will change, so I will just wait and see . I suppose high net worth persons will be packing their bags in the event the rises are draconian, which case HMRC will achieve little .

Why? How could a share consolidation fundamentally benefit existing or potential shareholders?

Reasonably informative analysis by HL in my view.

https://www.hl.co.uk/shares/share-research/prudential-2bn-buyback-programme-announced

The interesting thing about share buybacks with share cancellation Is that the lower the SP during the buyback period, the more beneficial it would be for long term holders. (buy low - sell high). I’m not sure everyone, meaning LT holders, would like to see the SP rising too far in the short/medium term. With those wishing to sell in the short term, it is, of course , a different story.

Absolutely fine Robleo. All I can say is my approach has served me well. I would not hold the likes of bt, vod or banks as I cannot see where they have long term competitive advantage. Companies like Msft , rel and mastercard demonstrate these features and I have held these for over 25 yrs through thick and thin. But I will sell if a company I hold no longer meets my expectations of having long term competitive advantage - a case point was my holding in Paypal that lost its way. I have also held shel for 40 years but my reasoning in this case was different.

I do have some fun speculating with about 5% of my investments leading to some great results balanced against some abysmal failures.

Yeah Clued - we all like to dream. Add the lottery to the list - only with this you’ll be poorer a little more slowly.

Keep up the good work gman90 and tichtich promoting Graham’s approach to investing, copied and improved by Buffett/Munger. If one wants to get rich quickly - gamble in casinos, on horses or trade equities. Most will become poorer even quicker.

Sheltie - if potential investors just read Grahams’s Chapter 8 &20 of the Intelligent Investor and Buffett’s letters to BH investors from 1985, and implemented those pearls of wisdom, they would be well rewarded, and increasingly wealthy, equity investors. - and would not need to agonise about SPs on a short term basis. But different strokes for different strokes.

Sheltie - most so called professionals underperform the market so I’m not sure that they are necessarily a good advertisement for technicals. Technicals work, perhaps, because they are a self fulfilling prophesy in that if the technicals say sell, those followers will sell driving the price down and visa versa.

The other school of thought, following the Graham/Buffett/Munger viewpoint, is to evaluate the business looking at the fundamentals and only caring about the SP when wanting o to buy or sell. This has worked well for me buying “quality” companies that meet key fundamental criteria and holding for as long as the fundamentals remain sound. This approach does work - my ISA is well in excess of seven figures through a long term hold philosophy. . I don’t monitor the SPs on a daily or even monthly basis and sleep.

Alas_S. If you have to pay tax and would like to increase your ownership of the company, which is better depends on your tax situation I should think. Some of us have to pay 39.35% dividend tax on cash or scrip dividends and only 20% CGT on buy-backs which can also be deferred. If you believe in the long term future of the company, and want to increase your ownership over time, buy-backs would seem to me to be the preferred option for some taxpayers. It certainly is for me, and I vote in favour of it in AGM resolutions

The Times

Advice Buy

Why Investment plan has disturbed income investors, but should support long-term returns

I’ve held DGE , or previously. Grand Met., since 1990 - returns have been more than satisfactory. So I’m unfazed by the drop in the SP. Many of the fundamentals are still excellent although consumers have been cutting back on their tipples and I would prefer lower gearing. In the end strong brands endure., so I am content to keep DGE in my keep in my “no need to monitor closely” part of my portfolio.

I tried to figure out the question out as an investor who believes in holding for the long term, and that the SP will eventually reflect the fundamentals. Mr Market may see things different along the way, swinging from over optimistic to over pessimistic, or visa versa, but that is another story.

Looking at the question from the view of the fundamentals, supposing you own 1 share in a fictitious company valued at £1000 and having 100 shares in issue. The SP would be £10 so you would own 1% (£10/£1000x100) of the company.

The company has the two options to give back money to the SHs:- either pay dividends that could be used optionally to buy more shares, or buy-back and cancel the shares allowing SHs to cash-in any gains by selling some shares should they so wish. Suppose in the first instance there are no dealing costs or tax liabilities.

The dividend case. Suppose that the company issues a dividend totalling £100. You receive £1 as your share of the total dividend, but the company value would have to fall from £1000 to £900 ex dividend as it gives away £100 of its value. So the SP would now be worth £9 (£900/100shares). Then further suppose that you use your £1 dividend to buy shares in the open market at the SP of £9. You would get 1/9 or 0.11 of a share increasing your ownership in the company from 1% to 1.11%. The value of the company would then rebuild as earnings are accumulated and the SP should rise again fro m the ex dividend.£9 back to £10 once £100 is earned by the company. Your holding will now be worth £1.11.

The buy back case - the company uses the £100 it wants to give back to SHs to buy-back and cancel shares. In this case the company value would again fall from £1000 to £900 and 10 shares would be cancelled leaving 90 in issue. The SP would remain unchanged at £10 (£900/90shares), and your ownership of the company would increase from 1 in 100 (1%) to 1 in 90 (1.11%), exactly as it would if dividends were to be reinvested. As earnings accumulate again by £ 100 the SP should rise from £10 to £11.1 making your shareholding worth £1.11.

The value of your shares holding will be the same in each case. Which is better? That, it seems to me, depends on your tax situation. If you keep the dividend, or use it to buy more shares, you may need to pay dividend tax (at a higher rate when compared with capital gains tax) and dealing and stamp duty costs if purchasing more shares. No dividend tax is payable when shares are sold on share buy-backs, but transaction and capital gains tax (but at a lower rate than dividend tax) would be payable on any sale . This sale can be deferred as long as you wish, so compounding ownership at a higher rate if held long term. For those needing to pay tax on the investment, the share buy-back option would always seem to me to be preferable long term. If no tax is payable, it seems to be a case of six to one, half a dozen of th

The whole thrust of the BoD’s argument was that DT would be better off under private ownership of TB than it would be listed. That may well be the case. But that is not what the BoD there for - it’s primary purpose is to look after the interests of the owners, and whether it does better in private hands is of no concern to SHs unless the SP premium prices this in. They have not done in my view as they have clearly prioritised the interests as the company over that of the owners - IMO.

I blame the UK Company Act that defines the BoD’s role in a very diffuse way - shareholders only being mentioned as also rans. Contrast this with the equivalent US situation where upfront it states something like this “ the job of the BoD is to look after the intersects of the owners”. This is why BoDs were set up originally and it is as valid today as it was then IMO.

I have to wonder whether this diffuse understanding of the BoD’s primary role has something to do with the demise of the LSE.

Logical way (oops)

ok fleccy - no more debate from me. i belong to the school of thought built on my own experience and the insights of graham expanded upon by buffett/munger whose reasoning is logical and fundamental.

i don’t need a site to calculate intrinsic value, as this is a bread and butter concept and the methodology is well explained by buffett using discounted cash flow analysis of free cash flows - the lonely gogical way to determine value.

similarly where you quoted earnings before interest tax, depreciation and amortisation as a useful indicator, it doesn’t accont for most of the costs especially capex. i agree with munger when he called ebitda “bull****” earnings in the colourful way he expressed things.

finally you pourd scorn share buybacks. because of by tax situation, i would choose share buy-backs over dividends anyday. no immediate tax to pay and it would increase my fractional ownership of the company without the sp being significantly affected as it is when ex-div. do the maths.

i’m not convinced you really know what you are talking about. i’m not implying that anyone should listen to me either, but i spent my working life in project management and have been an exec in a multibillion pound company so some experience informs my ramblings.

that’s it folks, signing out, good investing.

Not answering got anyone Flec. Just wondering how you change all the words you write into an intrinsic value for a Business. Business are money generating machines - generating free cash for their owners, now and into the distant future - like a bond whose value is dependent on future cash flows discounted at the prevailing interest rate.

I think it is a good thing that NG refocuses the business on its core competences in power transmission, and if they need to sell parts of the businesses it owns to finance this, so be it.

Fleccy “Comparing one with the other, NG is either massively overvalued or BT is massively undervalued. ‘

I’m not sure I understand the logic of your reasoning. I’m curious to know how you determine the intrinsic value of a business to be able to make a statement like the above. Surely CAPEX and debt levels alone are insufficient? And how do you differentiate between CAPEX needed to maintain the business and CAPEX used to grow the business and generate future returns?