Member Info for tophat

MJS1

The dividend policy was set out in 2017.

Dividends are only considered payable from surplus in year cash flow and not out of short term borrowings. This was reiterated by Tim Jones at the 2025 half year results presentation.

One of the issues the company has is the securitized bond it has. Although net debt is falling the repayments on the bond remain at approx. £200m pa for about five years then they start falling quite rapidly. In effect the interest component of the repayment is falling but the capital component is increasing by about the same amount.

At some stage the company will restructure its finances but the break costs for the bond prevent that at the moment. However those break costs decrease over time so at some point it will be worth it.

As Tim Jones said, Capex is a priority for the company and at the moment there is no surplus cash after capex.

So probably no div this year!

Fromage

Directors implement share buybacks because shareholders (institutional ones) like them. The shareholders could easily put a stop to the buybacks by voting against them at the AGM.

The HSBC directors remuneration doesn’t depend on the EPS metric and it isn’t the case for AV, BP, BARC, LGEN or LLOY. In fact I haven’t come across a company where it is true.

HSBC have kept the dividend payout ratio of 50% of EPS, excluding exceptional items, for 2025.

Pokerchips

All companies pay their shareholder distributions out of distributable reserves. It is the law.

The reserve represents the shareholders own money as opposed to say customers deposits which the company may be holding.

The real world profits which a company earns get added to the distributable reserves and a company can only pay out up to the balance.

Usually companies don’t pay out the full amount so build up a buffer.

The situation is slightly different for companies which have to hold regulatory capital. Part of that capital requirement is shareholders own funds so the company will have to maintain a minimum level.

Pokerchips

Of course PHNX do not intend to sit back and pay dividends from reserves, quite the opposite. Like most financial businesses they are executing plans to increase capital generation and hence the amount they can return to shareholders.

What the comparison shows is that they are capable of at least maintaining the current level of dividend even if, for some as yet unknown reason, there a several difficult years.

Thedetector

There is another PHNX figure that I didn’t quote which shows the importance of looking at the reasons underlying the figures rather than just the figures themselves.

“Net assets deteriorating from around 7.8b in 2020 to 2.2b in 2024.” Correct, net assets were reported as £2.2b at year end 2024. However at the same time PHNX had distributable reserves (shareholders own funds which the company can legally pay out to shareholders) of £5.6bn!!! Welcome to the magic of “accountancy land”!

To put the £5.6bn into perspective the full year 2024 cost the company £567m so the reserve covers almost 10 years of 2024 dividends.

Of course, as a financial company required to hold regulatory capital, the PRA wound never allow PHNX to pay out anything like all of the £5.6bn. However, even without generating any additional capital, the company could maintain the 2024 dividend pay-out for several years and the hedge is generating very predictable capital (cash) inflows for years to come.

While meconopsis and others have given very good reasons why using dividend cover and other profit related metrics are meaningless I think that an example may help understanding what this means.

The PHNX final year 2024 results, published in March 2025, provide an excellent example.

The reported figures showed a loss for the year of just over £1bn and hence a negative EPS and dividend cover. Yet at close of play on results day the SP finished 10% higher than the previous close! Why???

Because in the real world, as opposed to “accountancy land”, the company paid all expenses and costs, reduced their debt by £250m, paid an increased dividend to shareholders and still had generated £300m excess cash!

PHNX have a structural hedge which is a portfolio of gilt securities whose value fluctuates inversely with interest rates. The accountancy “loss” was caused by the mark to market valuation. However the gilts are usually held to maturity and redeemed at par so the chance of an actual loss is very small.

What the hedge does do is give PHNX a very predicable income stream for years into the future, which supports the dividend!!! So the very thing which gave rise to a negative dividend cover ratio, the hedge, ironically, is actually protecting the dividend!

I don’t have such a good example to show that a high dividend cover ratio is meaningless but have this hypothetical example which demonstrates what I mean.

Suppose there is a financial institution with £5bn of debt which is valued “mark to market”. If that company is in severe crises then that debt may be valued at say £2bn as few investors want to take on the risk. In “accountancy land” the company posts a £3bn profit because, in accountancy theory, the company could buy back the £5bn debt for only £2b. This totally missed the point that if the company was in such financial difficulty then it probably doesn’t have the £2bn to buy back the debt!!!

Rumpel

No it isn’t a “skim”. It’s a function of the SETS trading system used to trade all FTSE100 shares on the London Stock Exchange.

The" buy" and "sell" orders are loaded into the SETS system which uses a strict sequence of rules to match the “buys” with the “sells”. For example, I believe the first rule is that orders placed “at best” take priority over “limit orders”. So if there are not enough shares to satisfy both an “at “best” trade and a “limit order” then the “at best” trade will take place and the limit order will fail, even if the price (or other condition) matches that of the limit order.

Another rule which can prevent a particular limit order from executing is that when two trades have the same priority the one which transacts the greatest volume of shares gets priority.

The latest analysts figures including dividend forecasts can be found using the link below.

https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/documents/natwest-group-q4-2024-consensus-210125.pdf

Apologies if this has already been posted but the latest consensus figures can be found using the link below.

https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2024/q4/2024-lbg-fy-consensus.pdf

Jim800

The three dividends already paid were each 10c so at q3 there was 51c for the div but they had only paid out 30c.

HSBA have confirmed that the payout ratio for 2024 will be 50% of EPS after exceptional items. The adjusted EPS for the nine months to September was $1.02 so we should expect at least 51c for the whole year plus half of the fourth quarter adjusted EPS. This means a q4 div of at least 21c plus half of the q4 EPS.

I didn't take part in the competition but have made a donation to this excellent cause anyway.

Actually the cash amount of the interim dividend for shareholders who took up their full right issue allocation is about 5.5% more than last year. A shareholder who originally had 24 shares would have received 24x19.4p = £4.65 last year. This year, after taking up their 7 for 24 allocation, they would have received 31x15.84p = £4.91.

Although this is a small increase compared with the cash paid for the additional shares, the important thing to remember is that the cash raised will be invested and the additional investment will increase shareholder returns in future years.

Pokerchips

‘"This company is awash with excess capital so no chance of a dividend cut."

Yes, but...a dividend should come from the company performance....not...from sneakily handing you back excess capital...

If they give you back excess capital that should be a separate issue’

I would make three comments about this.

1) Regulated financial firms pay dividends (and other shareholder distributions) out of excess capital because that is the rule!

2) Dividend payments have to be approved by the regulator and the first thing the PRA will do is look at the impact of the proposed distribution on the capital position and will block it if the resulting capital would fall below the minimum required. So the rule is enforced whether the company or anyone else likes it or not.

3) The rule is sensible as it increases financial stability which is good for the company, shareholders and the economy as a whole.

Although there are multiple tiers of capital all of them must have two attributes. First the assets must be capable of absorbing real losses (i.e. cash leaving the company) AND must be available to do so when required (they are sticky!). Assets which can easily leave the company don’t count as capital. Shareholder equity is the stickiest form of capital and dividends must be paid out of it.

Although assets such as deferred tax assets and goodwill count towards the profitability of a company they do not count towards its capital. If dividends were allowed to be paid out of profits rather than capital then it would be possible for a company to accumulate a lot of deferred tax assets (which count towards company profit) and a proportion could be paid out in dividends. It is likely that a successful company paying out dividends would also accumulate goodwill, which also counts towards profits and so a proportion of that could be paid out as well.

Now suppose one day the government announces that deferred tax assets will no longer be recognized. Now there is a hole in the accounts but it gets worse. No-one wants to touch the company because of the hole in the accounts so the goodwill disappears as well! A profitable company which was paying dividends has rapidly turned into a major liability!

The possibility of situations like this are dramatically reduced by paying dividends out of capital, insisting on minimum levels of capital and being careful about what is classed as capital. In the real world, a few years ago, HSBC wrote off $6.4bn of goodwill on the sale of some of its South American assets. It made no difference to the financial stability of the company nor the amount HSBC had available to pay to shareholders. It was simply a bookkeeping matter with no significant consequences.

Felix55

Returning to your original question the poster “Lending” has given a very good answer but there is another aspect which needs to be considered.

Dividend cover depends upon the EPS which, in turn, depends upon the profit. As “Lending” pointed out the change from accountancy standard IFRS4 to IFRS17 meant that profits on Insurance contracts which had been recognised immediately are now recognised over the life of the contract, initially reducing profitability.

What investors in banks, insurance companies and other companies which have to hold regulatory capital should understand is that capital position is far more important than the accountancy concept of “profit and loss”.

Shareholder distributions, such as dividends and share buy backs, together with investment in new business, are paid out of excess capital, not profits!

There are many things such as deferred tax assets, fair valuation of own funds and goodwill, which can make a big difference to the accountancy profit/loss figure but have absolutely no impact on the capital position. The change to IFRS17 reduces the EPS and dividend cover but makes no difference to the capital and hence the amount the company has available to distribute to shareholders or invest in new business.

Although it is both easy and tempting for shareholders to look at metrics such as profit, EPS etc. the things which really matter are the capital position, changes to the capital and the reasons for those changes.

The special div of 21c per share from the sale of the Canadian operations was paid along with the 1Q24 div of 10c per share on 21st June 2024.

Hardup

I totally agree. Caveat Emptor has become Caveat Vendor with the change applied retroactively.

Hardup

There are more than five sources of motor finance in the UK. Whether she would get another offer and at what rate is very questionable. I suspect that she would have accepted almost any interest rate as long as the terms were affordable.

Exactly!

Hardup


“It is incumbent on the consumer to shop around for best deal getting quotes from more than one source to compare.”

Mrs Y, the claimant who won the FOS case against Lloyds, did shop around - she was turned down by four other companies before Black Horse Limited agreed to the finance!