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ECRyder,
Regarding tax, I'll wait and see what my end-of-year consolidated tax certificate from my broker looks like. If they include this dividend along with all the other dividends from my other shares, I'll just have to go along with it and declare it as dividend income on my self-assessment return. If they don't include it, or annotate it differently, I'll deal with it appropriately.
I have had a situation before - I forget exactly which company - where capital was returned by the firm making a "tender offer" for 1 in 5 of every shareholder's shares, and in that case it was absolutely clear that it was a return of capital and *not* a dividend. That was about 15 years ago, so maybe things have changed since then.
Regards, Mike.
Sorry ECRyder, I don't understand what you're saying. My "Pre-dividend" figure is the situation "now", and the £2-40 is meant to represent the share price now (as an approximation). Maybe I'm being thick?
Rgds, Mike.
Sorry Nige(7),
Our replies "crossed" in the electronic post!
Generally, it appears to have been designed to be "neutral", ie neither benefit nor disadvantage, but the outcome for each individual shareholder will depend on his/her individual circumstances. In my own case, for example, I will now have to pay some income tax on some of the dividend - luckily only 7.5%. For higher-rate taxpayers, they may have to pay 32.5% on some or all of their dividend (all depending on where I/they sit in relation to this year's £2,000 nil-rate allowance for dividends. So being taxed to stand still!
*But*, as some have said, this is supposedly a "return of capital" rather than a "normal" dividend so there may be ways round that problem. Everyone's circumstances will be different.
Rgds, Mike.
Purely mechanistically, and using "round" numbers to make it clear, and starting with 19 shares to avoid fractions.
Pre-dividend:-
Shareholder has 19 shares currently priced @ £2-40.
Ex-Dividend (if there were no consolidation):-
Shareholder has 19 shares priced @ £1-89 plus £9-67 cash.
Post-Consolidation:-
Shareholder has 15 shares priced @ c £2-40 plus £9-67 cash.
Then "market" factors take effect...
Or is this over-simplistic?
Mike.
Hi jimjam, et al,
As a holder of Tesco shares myself I very much hope that you're right and that early next week the price of the ("new") Tesco shares is about £3-13, but sadly I think that will *not* be the case, and, everything else being equal, the price of the new shares will be very similar to the current price of the existing shares. My own reading of Tesco's literature and announcements is that the whole exercise has been designed to result in the "before" and the "after" share price being about the same. However, because the dividend value (per share) is fixed whereas the share price itself moves in the market, the "before" and the "after" share prices can only be the same with one value of starting share price, and I think that is £2-42.
I have put together a complicated spreadsheet that works out what the "after" price would have to be for any given "before" price for the individual not to lose out, and the results are interesting. At £2-42, the "before" and the "after" price are the same, but the higher the "starting" share price, the higher still the "after" price would have to be so that one didn't lose out. I will re-check my formulae in the morning (I'm very tired now!) but the results for the "before" and the "after" price to maintain the same total value (including the special dividend) are, for now, as follows ("before" is on the left, and the necessary "after" is on the right):-
£2-20 / £2-14;
£2-30 / £2-27;
£2-35 / £2-33;
£2-40 / £2-39;
£2-42 / £2-42;
£2-45 / £2-46;
£2-50 / £2-52;
£2-55 / £2-58;
£2-60 / £2-65;
£2-70 / £2-77;
£2-80 / £2-90.
Of course the Tesco share price doesn't operate in a vacuum, and a lot could happen between now and next week!
Good luck all.
Mike.
Hi MinTid,
Sorry to reply late, and sorry also for complicating things further.
The BP dividend is announced every quarter, and it is announced in US Dollars (eg 5.25 cents). They then announce how much it will be in Sterling (£ and pence) nearer the time it's actually paid, depending on the £-to-dollar exchange rate at the time. So it won't be exactly 4p, and it won't be exactly the same number of pence every quarter - each one will be slightly different. Normally it won't vary very much, but for example if the £ "crashes", as it did with the Brexit vote in 2016, then it will vary much more.
As others have answered, what version of the share price you use to calculate the "yield" depends on what purpose you want to use the yield for. The newspapers used to have tables of yields for all the main shares (they probably don't anymore, but similar tables will exist on the internet), and these should use the most-recent share price. Whilst, everything else being equal, one might think that the higher the % yield, the better, if you see a *very* high yield (say 9%, or even 12%), I'd urge extreme caution. To be sustainable a company should not pay out any more dividend than it can safely afford, based on its trading performance, etc. A very high yield usually suggests that the market knows that the company is in trouble. A 12% yield isn't much use to you if the shares themselves then halve in value!
I hope that helps,
Mike.
Absolutely no problem Rocket57 - I'm glad it was appreciated. All the best with whatever you decide to do regarding BP (or anything else). Half of me says top-up my holding at these levels, but I'm just going to have to sit it out because all my available cash has gone elsewhere for now.
Mike.
Rocket57,
Forgive me if I'm stating the obvious, or misreading the nuance in your original post, or if you've already got your answer from someone else, but when dividends are announced, they are set as a fixed amount of money per share, not as a percentage of the share price. Also with BP they're set in US dollars at the time of the dividend announcement (so the one due for payment in March has, from memory, been announced at 5.25 cents (0.0525 US dollars) per share. That figure will, for UK shareholders, be converted to a Sterling (£ per share) figure at a time nearer the actual payment date dependant on the exchange rate at the time. So at the moment, as others have said, the March payment should be roughly £0-04 per share, but even if it's 5.25 cents every quarter, the exact amount each UK shareholder gets will probably be slightly different in each of the 4 quarters (because the £-to-dollar exchange rate is changing all the time). Also, the dividend for March is for the 4th quarter. The June, September and December payments might be different, even in the dollar figures announced, depending on the Board's dividend policy in the new financial year.
I hope that helps,
Mike.
Cereus,
The £4-68 would have been back around 2010 (I started buying-in in 2011 when it was in the £3's). I'm not sure how relevant that price is to today's situation, as it was *before* the accounting scandal broke (just before "Drastic Dave" came in, in about 2014), and it was before 10 years' worth of the "onwards and upwards" march of the German discounters, eroding Tesco's UK market share, etc.
Mike.
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.
Hi POLOMan,
If I'm understanding your question correctly, you're asking about income tax paid on dividends. You're allowed to have £2,000 of dividends a year free of tax (so you're only taxed if your total dividends in the year - Tesco and everything else combined - exceeds £2,000. Then, if you're a Basic Rate taxpayer, you pay tax of 7.5% on just the bit of dividends that's above £2,000. Dividends from shares are now paid gross - it changed a couple of years ago (April 2016) before which they were paid net (ie tax had already been deducted). If you're a Higher Rate taxpayer, the rate of tax is 32.5% (ouch!).
I hope that's of some help. I'm not an expert, just someone who has to do self-assessment tax returns every year.
Mike.
Hi prussell1963,
Thanks, that's a very clear explanation, and I think you were lucky to get in at 222p if that was recent. Your holding is a similar size to mine so a similar dilemma. The big difference is unless the market crashes tomorrow morning you're already sitting on a significant paper profit which you could get by selling immediately with no capital gains tax to pay unless you're right up to the limit (threshold) with other share sale profits this year. In my case, my most recent purchase, at about 228p, was only about a seventh of my total holding, whereas the vast majority were bought at over 320p back in 2012 so if I sold now I'd still make a large capital loss of over £2k which is absolutely no use to me unless I have gains elsewhere to offset it against. As you say, this share stuff isn't easy - I've been doing it over 20 years now (self-taught) and the more I think I know, the more I realise I don't know. My big mistake with Tesco (and the other supermarkets) was buying them in bulk back in 2011/2012 without analysing their "financials" properly, just because I thought they were "cheap" compared to the old peak which was (if I remember rightly) over £4 a share. Plus, the German discounters came along!
Good luck, whatever you decide!
Mike.
prussell1963,
I don't follow some of your maths. If you have 2550 current shares, and it's a 15 for 19 consolidation, then my calculation suggests you'll instead have 2,013 "new" shares. Where did you get 1,974 shares from?
With the 50.93p special dividend, on your current shares, that's indeed £1,298-71 (or "approx £1,300" as you say).
Sorry if I've missed something.
Mike.
Leas,
Thanks for your kind words, and your own comments.
The only bit I'm not too sure about is "The yield may be increased to reflect the consolidation". I guess if the overall company is making "x" profits, and these are larger going forwards because it's relinquished a couple of loss-making businesses, it can afford to pay a bigger overall dividend (in £ terms) and that dividend now gets divided by a smaller number of shares, so the dividend per share could be higher and thence the yield. And this with a smaller pension deficit to service. How much all this good news is already reflected in the share price only time will tell.
Mike.
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.