Standard Life - 73p Cash Payment But .......

bowlhead99

molerat wrote: »

killerkev wrote: »

So based on the dividend payout for May 2014 of 10.58p 500 shares would have earned £52.90 if the new shareholding of 409 had been in place the pay out of the same amount of distributed profit would have been 12.94 per share. Each new share will earn the same share of the company's profit

I believe that is an accurate view

Is that a grumpy face because you are now begrudgingly accepting that although you have fewer shares, there are fewer total shares in issue... so you will still receive the same 'share' of the total pot as you previously did... and if the company still makes as much money as it was going to, you'll get the same cash you were going to... because the company will now simply pay more out per share at 12.94p instead of 10.58p; and so your previous hostility to the company was unwarranted because you haven't lost out on anything?

molerat

No because the declared 11.43p dividend is based on the earnings of and attributed to the old number of shares but will be paid per share on the new number so, as killerkev poses, it should in fact be 13.97p per new share. Future dividends will obviously be based on the new shares but the 2014 final is not according to the literature.

bowlhead99

Your ownership in the company is not changing. If you keep the same fractional ownership of the company, then you will keep getting paid out the same share of whatever they pay out. As always, the total amount that they pay out across all shareholders will be whatever total they can afford to pay out while prudently retaining some money in the business for ongoing operations. That total amount of money being paid out across all shareholders will vary from year to year depending on what is affordable.

If you choose to buy more shares in the company after receiving your proceeds, you will get paid out an even greater share of whatever they pay out, going forwards.

I'm not sure why you're having a problem with this but maybe I'm missing something.

molerat

The 2014 final dividend of 11.43p per share payable in May was earned and divided amongst the old number of shares, an 8% increase on the previous year and in line with their "vision" of dividend increases. I have "earned" that dividend payment based on my holding of old shares in FY14. They will now pay this as 11.43p per new share therefore I will only be receiving 9/11ths of the expected total dividend. If the total dividend payable was divided amongst the new shares it should be 13.97p per share.

Linton

molerat wrote: »

The 2014 final dividend of 10.58p per share payable in May was earned and divided amongst the old number of shares and is in line with their "vision" of 8% increase on the previous year. I have "earned" that dividend payment based on my holding of old shares in FY14. They will now pay this as 10.58p per new share therefore I will only be receiving 9/11ths of the expected dividend. If the total dividend payable was divided amongst the new shares it should be 12.94p per share.

The final dividend payable in May 2015 is 11.43p/share for a total of 17.03 for the year. See here.

molerat

Linton wrote: »

The final dividend payable in May 2015 is 11.43p/share for a total of 17.03 for the year. See here.

I have edited my post, I copied the numbers from another poster without checking but the basis is still the same.

Hal17

Spidernick wrote: »

An even more basic question (and one I have just sent an e-mail to SL asking) is why income is the default option. I can think of very limited circumstances where taking the income option will result in a lower tax bill and so capital should have been the default option.

If I am missing something obvious then perhaps someone could enlighten me, as the way things stand many people will unwittingly walk into an unnecessary tax bill (i.e the majority of people who will not have used their CGT exemption but who will be paying income tax) if they do nothing and leave the income default in place.

I am going to need some advice please - real basic as all this is way over my head and understanding. Both myself and my wife received free shares and have taken dividend as shares. The number of shares we have is about 1,700 each..

We will have both just gone over our personal allowance in this tax year, so any additional income will be liable to 20% tax.

However neither of us have used any Capital Gains allowance.

So surely we should return the form requesting the full amount as Capital - is this correct. Really appreciate any help.

bowlhead99

molerat wrote: »

I have edited my post, I copied the numbers from another poster without checking but the basis is still the same.

It's a smaller business -they just sold some of the company and gave you all the resulting cash. So, what do you think should happen to the dividend? Smaller businesses pay smaller total dividends.

Besides, the amount of dividends they pay out PLUS the amount they can afford to distribute as a special one-off return from the disposal, will have been considered together when looking at their free cash flow to decide what they should pay out when. They are not holding back cash that they "should" have paid out. They are paying out what they can sustainably afford, to their investors.

They restructured your shares so that your shares are more valuable, each, than if you had kept your old number of shares when they shrank the business. If they paid out 11p+ on shares that had fallen in value with the disposal of the business, you would have been able to more easily see that the percentage paid out per share would be unsustainably high. Instead, they bumped up the value of the shares to give the same approximate value that they would have been if they hadn't returned the Canadian cash, and they declared the dividend per share knowing what each share was worth going forward (post-disposal) and what that dividend would represent as a yield.

Seems fine to me. If you understand how shares and dividends work, it will seem fine to you too. If you think you would like more, where do you think the money is going to come from? Clearly, they can only pay out what they have actually got. They explained in quite a lot of detail how much they have made and how much they have got, in the annual report published a few days ago.

It is quite a comprehensive report - 5.5MB pdf and around 300 pages. I suggest you read it, if you have not. You will see they refer to continuing a progressive dividend policy going forward with the remaining business. Sounds fine to me. Nobody is getting swindled. However, if you no longer like the business prospects, there is nothing to stop you quietly selling up, nor gathering the masses to camp outside parliament to protest.

bowlhead99

Hal17 wrote: »

We will have both just gone over our personal allowance in this tax year, so any additional income will be liable to 20% tax.

However neither of us have used any Capital Gains allowance.

So surely we should return the form requesting the full amount as Capital - is this correct. Really appreciate any help.

Actually if you are only basic rate 20% taxpayers, you don't need to worry. Basic rate 20% taxpayers do not pay income tax on UK dividends. Taxpayers like you only have a 10% tax rate on dividend income and this will be fully covered by a notional tax credit that you'll receive with the dividend income payment. The literature explains this.

If you're not the kind of couple that make lots of capital gains and losses and uses your CGT allowances, you don't need to do so on this occasion either.

Spidernick

bowlhead99 wrote: »

That's right - it gets grossed up by the standard tax credit of 1/9th and then you pay your standard dividend rate on it.

So if you were getting £90 cash and it was classified as income:

For a basic rate taxpayer it counts as 100 income and you owe 10% of 100 which is 10, but already have 10 of credit so you pay 0, which is 0% of the 90 you just received

For a higher rate taxpayer it counts as 100 income and you owe 32.5% of 100 which is 32.5, but already have 10 of credit so you pay 22.5, which is 25% of the 90 you just received.

If you got £90 of cash classified as sale proceeds instead of income:
- you would pay tax on however much of that £90 counted as a 'gain'.

For some people, depending what they paid for the shares, the gain would be nothing, or maybe it is covered by their annual allowance. But for basic taxpayers who had a gain and it didn't fit in their annual allowance they would be paying 18% tax on it, which is more than the 0% they pay on dividends, even if what you pay the tax on is only the gain element of the £90 rather than all of the £90.

For a higher rate taxpayer they would be paying 28% on it, which again is over the 25% rate they'd pay on the £90 in an 'income' scenario, although you only pay tax on the gain element and not the total proceeds. If you'd held the shares for a very long time so that the £90 was 90% gain, 10% cost, you would have £81 of gain. Paying 28% tax on £81 gain is £22.68, while paying 25% tax on a £90 income is only £22.50. So there will be some high rate taxpayers as well who do not want the CGT route because they do better from taking income.

So, income becomes the default route for UK investors. If you are a higher rate taxpayer and not all of your proceeds are 'gains' or you have unused CGT allowances, you may prefer CGT. If you were an even higher rate taxpayer (i.e. 45% rate instead of 40% rate) you are even more likely to prefer CGT.

So, everyone gets the chance to pick whatever they want. In some circumstances you might want a mix. Depending on your buyin price for example, you could get paid B Share proceeds to crystallise a bit of capital loss with some of the money, and then get paid C Share dividends to pay a low rate of income tax on the rest. Everyone will have their own personal position which may not be the 'average'.

I understand the above, but the point is that most people will not have used their CGT exemption in the year, in which case going with capital rather than income will give at worst the same further tax bill than if they'd chosen income (I assume the 10% tax credit for income will be notional and so not repayable) and in many cases a lower tax bill with capital (i.e zero for higher/additional tax rate payers).

The only scenario I can think of where you actually pay less tax opting for income would be where you already have gains above the CGT exemption in the year, which I doubt is that many people and I would imagine is a lot less than the higher/additional-rate taxpayers with no or very low other capital gains in the year.

All in all, I still maintain that the default position should be capital and I really cannot see why it was not set up as such. I'll advise when I hear back from Standard Life on this.