Member Info for LordAdam

Chris, well spotted that the repurchased shares are being held in treasury and have not so far been 'retired' or cancelled. But, being in treasury does mean that they are not entitled to the dividend and neither do they participate in the EPS calculations etc. So all the various calculations that have been discussed still hold I'm afraid. The only real difference between being in treasury and being cancelled is that they could be issued again without having to be created anew ... and that does bring into question why a board might wish to keep them hanging around. If I were overly cynical or Machiavellian I might think that they might be going to play a part in the soon to be revised incentive plan that is up for the EGM on the 23rd -- which reminds me that I had better read the details of that ... Mike

Sadly more assumptions ... leaving aside the personal ones again ... you assume an efficent market place and sadly that's not what we have. Who says that the shares will be worth the 33.33% more than they were before the 25% were bought and cancelled? you? the market? some broker? ... they could be worth almost anything, less, more, the same. The dividend is set and fixed (leaving aside currency issues perhaps) and paid. That is my point ... I don't have to trust Mr Market to maybe make up the shortfall that I need. Further I may choose to reinvest the dividend in this company, I may hold and reinvest later at a different price, I may choose to invest in another company altogether, I can spend it. The point is I have a choice ... with buy-back I have none. As for the mathematics, there is actually a very small advantage to the buy back if we assume a perfect market and no dealing costs. But it is very small, and sadly selling small numbers of shares is not efficent either in terms of dealing costs or time. Mathematically it may look the same ... in practice it's rather different. As I keep saying, for me as in income investor buy backs are not good news ... there's some hope for this particular buy back scheme as I've mentioned before, but I'm waiting to see how they actually do the numbers come the next set of results before buying or selling further. Mike

Leaving aside the personal taunts ... at best a buy back replaces the certainty of a guaranteed, assured monetary transfer of a dividend with the vagaries of the markets valuation of the share itself. And I reiterate, that for myself, as a long-term income based investor, the replacement of income stream with hoped for (but not guaranteed) capital gain is not a good deal. For you it may be different, but for me it's not. Mike

Sorry RichRed ... got the wrong end of the 80/20 split there. I concur, the figures to date suggest 15p reduction in the upcoming dividend. However, I don't concur about it being just another form of Dividend Reinvestment Plan (DRIP). We're not being given extra shares in lieu of the dividend we would have received, rather there is a hope (not a guarantee) that the market will reward us with an increased share price ... and it's compulsory with no mechanism for getting the equivalent money back out. As I've said before there are a couple of pluses as regards this specific buy back. The first is that the board has undertaken to return the same level of money overall (most sneakily use the lower number of shares to retain the difference) and the second is that they have indicated that the appropriate dividend amount will be split over the reduced number of shares. Richred's figures suggest that the reduction in share numbers will increase the dividend by approximately 1p ... but for that we are losing 15p of actual dividend. And for us long-term income based investors there's no mechanism to get that 14p back without selling and reducing our income stream even further in future years. From my own perspective its not a good deal. Mike

Arsenal ... "Ninety percent of the times I have received a special divi,the company has done a stock consolidation" ... that's a very interesting statement and I'd really like to research it more fully. Can you post a list of the companies that you've held that have done a stock consolidation or paid a special dividend so that I can look into the details? Mike

And right on cue ... what do we get this morning ... an RNS detailing how the board are buying back 1,299,491 shares with �15m of our/company money to keep the bonus scheme under wraps. Now I'm not against bonus schemes per se, although a regular 75m per year may be a bit excessive for this boards poor performance, but I do object to the board using our money to stop share dilution taking place so that the EPS stands more of a chance of meeting the targets -- and hence paying themselves a bigger/better bonus. I've said it before and I'll say it again ... buy backs are a sign of a inward looking board that have ther own interests at heart rather than those of their sharehoders ... they are bad news for us little guys. Mike

Shrinking dividends ... As board of directors has indicated, and others on this board have posted, the dividend is not stonking, it's shrinking. Richred_uk estimated a short while ago that the buy back has already taken the equivalent of 85p out of the upcoming 100p dividend. Unless the board balances the buy back over the whole year we may be looking at a 15p not a 100p dividend this time around. Mike

A detailed look at the results shows not only the $300m buy back that we've all been talking about ... but a year on year, going on forever buy back of about $70m per annum. They've been using the companies/our money to buy back the equivalent shares that they've been issuing in the bonus options schemes. This prevents dilution and keeps the options scheme under the radar ... so I bet you thought like I ... well, let them create and issue shares as options the real cost is only a small dilution effect, it's funny money in effect ... WELL wrong, its actually real company money ... stuff that could/should be distributed as dividend that's been going. Further ... there's no increase in the dividend is there?, despite there being 3% less shares to split it over. So what do we have to show for the loss of the 25p special that we could have had? Now I'd really like to hear a reasoned account of where my 25p is and how I can get my hands on it! Mike

My sincere apologies .... the last posting that I made with the above title was intended for the Smith & Nephew chat stream (where there is a similar, misconceived buy back going on as well) and NOT for the SSE board here. I am indeed sorry for any confusion or concern that it might have caused ... as a side note readers here might like to have a look at what is happening over there and the discussion that has taken place (SN. is the EPIC). Mike

A detailed look at the results shows not only the £300m buy back that we've all been talking about ... but a year on year, going on forever buy back of about £75m per annum. They've been using the companies/our money to buy back the equivalent shares that they've been issuing in the bonus options schemes. This prevents dilution and keeps the options scheme under the radar ... so I bet you thought like I ... well, let them create and issue shares as options the real cost is only a small dilution effect, it's funny money in effect ... WELL wrong, its actually real company money ... stuff that could/should be distributed as dividend that's been going. Further ... there's no increase in the dividend is there?, despite there being 3.3% less shares to split it over. So what do we have to show for the loss of the 50p special that we could have had? Now I'd really like to hear a reasoned account of where my 50p is and how I can get my hands on it! Mike

Generally Boards that do buy backs can't resist returning to the trough again and again ... it's just too easy for them to artificially boost EPS, and ironically maintain dividends. So I'd normally say that anything would be on the cards in the future. But ... I have to say, this board has made a couple of encouraging statements that suggest that they intend to play the game fairly and a) ensure that the total amount used/returned agrees with what they said in previous years and b) the dividend per share will be increased to allow for the reduced number of shares in issue and c) the bonus scheme will be adjusted to allow for the artificial growth in the EPS etc. If they do that then that goes some way to at least levelling the playing field. But we need to see how it actually operates in practice. Compared to cash/divi in the bank account, for me personally, any buy back is probably a disadvantage. I await the results ... until then I'm holding fire. Mike

"the share price that is happening" ... is entirely dependant on the vagaries of the market, the day of the week, how joe blogs feels and which way the gold fish is pointing. The point is that any possible increase in the share price is at the whim of the market and we all know how fickle that is. It's naive to think that a 3.3% share buyback results in a guaranteed 3.3% share price increase. Even if it did, how do you access the money? Like the increase in your house price ... you've got to sell to realise the gain, and down sizing, especially if they maintain the dividend rather than increase it by 3.3% may be to your detriment. Finally, how do you compound a share price increase? The answer is you have to trust the BoD to grow the company at an advantageous rate. ie you have no choice. With a dividend you can always invest it somewhere else if you want or need to keep your portfolio in balance. It's like having a mutual fund that keeps all the income and reinvests it on your behalf ... no choice ... period ... like it or lump sort of thing. Compared to a 50p special dividend I'm not so sure that this BoD is returning full value to me ... we shall see more fully when the results come out. But I'm expecting to be short changed on the overall deal. (But then you can call me a cynic if you wish.) Mike

I think the analogy of the endowment is both a good and useful one. It's one of the arguments in favour of 'special' dividends. They aren't included in the historical record of dividend payments for the company. So by paying a steadly increasing base dividend with occassional specials as windfalls and bounty years occur a company can keep a solid progressive dividend record *and* return a lot of value to share holders. I'm sure all will be revealed when the results come out ... but then again, maybe that is a naive statement/sentiment? Mike

Sadly I too am pretty sure that there won't be a double increase in the divi, but there should be. The company makes profit at the same rate regardless of the number of shares in issue. So if the company pays the same amount in divi as last year, 3.3% less shares leads to a natural increase of 3.3% in the dividend itself as if by magic. If their promise is to increase the total amount paid by dividend by the RPI then that should come on top as well. But I suspect that the promise of matching the RPI is 'spin' ... that we will get less than a 3.3% increase ... and that the total amount paid for dividends will actually go down. The BoD will make a fuss out of the increased dividend -- actually produced by the buy back, not their efforts. And of course the buy back was paid for out of the 50p special dividend they took off us. Mike

I would hope that the Auditors would point out such mal-practice, but past events show that auditors often do not have quite the oversight and insight into company dealings that we would hope for ... there's been many a company debacle where questions were asked after the event about the quality of the auditing that was done. But my question/answer was really aimed at determining if some of the comments about companies 'borrowing' to pay dividends were reasonable or just evocative statements that were a tad wide of the mark. It would seem that a company could pay a dividend in a lean year, provided that it was covered by profits retained from earlier years. Of course if the actual cash were not available then borrowing could take place to facilitate it I suppose. That might not be a prudent thing to do of course. Mike

Answer?: The HMRC web site on running a limited company unequivocally states "Your company must not pay out more in dividends than its available profits from current and previous financial years.". If that is the case then your accounted profit for this current year, and/or the retained (heldover) profit from previous years MUST cover the dividend that you intend to pay -- any discussion of borrowing is a red herring -- or have I missed something? Mike

15-20 years ago when I set up a limited company I seem to recall that it was only legal to pay a dividend out of actual profits or profits retained from earlier years. This meant that it was not legal to pay a dividend out of borrowed money or capital/equity. Is that still the case? And if so how does it impinge on various folk often talking about companies (not specifically VOD) borrowing to pay the dividend? Mike

No competition really ... a buy back is no cheaper -- it just uses the same money in a different way. I'm on record as saying that buy backs are a sign of inward looking boards that are feathering their own nests and using share holders funds to do it. Shell's BoD are way above such crass manipulations ... and no CEO wants to be in the history book as either the first to cut the dividend or to rob the widows and orphans who depend on these shares for their income. Mike

Well it's nice of them to indicate that the dividend will at least keep pace with the RPI ... not so difficult though really as the share buy back provides an increase of 3.3% due to the cancelled shares alone. We shall have to see if they play the game fairly and the usual dividend funds to the windfall of the buy back effect to give us the more correct 5-6% that should be our share of what's going on. Looking at it a different way ... I lost a 50p special dividend to fund the buy back ... and I'm being promised an RPI increment on an historical 80-90p ...um ... about 3p over the next n years. I'm going to have to be invested for 20 years to break even on this deal me thinks. Unless of course they are going to share their now, almost guaranteed executive bonuses with us ... but that won't work either as the bonus is paltry compared to the special pay out. Strikes me that it's just like the metal thieves who nick signalling cabling -- they get £50 scrap for what costs the rest of us £1,000's. Fingers crossed that they do the RIGHT thing come the results and increase the dividend by the proper amount PLUS the percentage due to buy back. Mike

But the buy back hasn't finished yet ... its barely started -- unless there's been some kind of news/RNS that I haven't seen. So far we've only had 8 trading days worth -- most buy backs seem to go on for 3-4 months. If that's the case here, then over 100 trading days we would be looking at £150m+ and that's a lot more than the trival 9p per share that the present numbers already give. (More like half the annual dividend in fact) And the major point is ... compared to the certainty of a share dividend, what does the buy back give us/me? For a long term holder any share price increase is one off at best, gained only when the holding is sold ... and any increased earnings per share is vulnerable to being used to buy more shares back rather than being paid out as dividends. From a long-term, income driven holder's perspective what's going on doesn't look good news. I'll stay in until the next set of results are posted, review what happens to the dividend then and make a decision accordingly. Mike