Tesco Dividend

[Wizard]

My bold.

You seem to be reinforcing my point, not sure if that was intended. As you say, without the support of the tax payer through the business rates holiday the business would have had greater costs to absorb, so may have been less well able to pay a dividend.

I think you are looking through the wrong end of the telescope. Tesco has made extra efforts to help the community, which they may not normally have done. They have taken the business rate holiday and in effect donated it and some, to helping others.

Rather than feel obliged to the government, it would have beeb better to tell them not to interfer - and I suspect the effect on society would be worse. Though I doubt Tesco were given a choice.

The whole of our society is based on capitalism. Shareholders are part of the stakeholder system and they must be paid and indeed they arrange their lives around that status quo: to renage on that smacks of a socialist state. If you want something different, that's a different matter. In fact I rather wonder if your views would be radically different if you were retired and living on your investments. You would be employing quite different arguments then! As a high yield investor yourself (I'm beginning to wonder if you are) your attitude is rather surprising.

Arb.

I think you have messed up the post referenced above, I think it is now corrected as quoted. However, that does not really matter as it is clear we won't agree on this point. Maybe you are right, if I was living off just a State pension* and dividend income maybe my views would be different, especially if I had to worry about the continued payment of my marina fees

* It is my understanding that State pensions are paid out of current year taxation, if that is right anything you paid will have been towards the pensions of others. You now rely on current tax payers to fund your State pension. It is why my personal planning assumes I will receive no State pension as by the time I would be drawing one I expect it to be means tested.

[Bouleversee]

No offence caused whatsoever, Ian.

But while I was dithering on here, the sp moved up and I think the day's loss was more or less eliminated so you were right in a way.
However, no doubt had I bought it would have gone the other way. I think I had better head over to the What are you buying? board as I really don't have a clue what to do.

[dealtn]

I tried to read those linked statements dealtn provided but there is too much to read in too small print and I really don't know how to interpret them.

What would you like help on?

Just what I said in my second para.

Well it will depend how they structure it, and we won't be getting those details for quite a while yet. £5bn or so is the expected shareholder return, which is about 50p, and they say it will come via a special dividend.

What they might do is also offer an alternative as a return of capital. You get the same, but in a slightly round about way. Typically they will create a new class of share, and simultaneously buy those shares back using reserves. Some investors will have different tax implications depending on whether they receive their return by way of dividend income, or by return of capital.

What will likely happen, in either case is that the share price will drop by the 50p, much like when ordinary dividends are paid. there is no free lunch here. Before the payout you have approx. 220p share, after you have 170p share and 50p "cash". Because this makes the share price performance look odd, typically there is a share consolidation too, so that the "after" price looks like 220p. They will "consolidate" the shares in issue such that for every 220 shares in issue there will now be only 170. (Although they might make the numbers smaller and "easier", say every 5 shares becomes 4 shares.)

In practice for small shareholders that pay no tax (Dividend or CGT), and who don't fill in a tax return, there will be nothing to do, except maybe tell the company (or your nominee depending how it is held), which option you want to receive the "special". No doubt it will be discussed here closer to the time, and frankly 3-6 months is a long time frame in the current world.

[Bouleversee]

Thanks, dealtn, for reminding me about all that. However, I could be wrong but I thought one could no longer be given that choice and it had to be taken as interest now; I may be mixing up with something else. Unfortunately, I do have to do a tax return. However, something tells me that my tax code might now be incorrect now that dividends have disappeared; must look into that and try to get the best of my non-ISA shares into ISAs before dividends resume, though I fear some never will.

[idpickering]

No offence caused whatsoever, Ian.

But while I was dithering on here, the sp moved up and I think the day's loss was more or less eliminated so you were right in a way.
However, no doubt had I bought it would have gone the other way. I think I had better head over to the What are you buying? board as I really don't have a clue what to do.

No problem Lorna, thank you. As for what to do, I'm just carrying on with my monthly top ups. I'm focusing on the known dividend payers (hopefully) first, before I even look at my 8 cutters in my 28 share HYP. I'm lucky that I don't rely on the dividends to live on just yet, maybe in a year or so? I feel for those of our team that do though.

Ian.

[Arborbridge]

No offence caused whatsoever, Ian.

But while I was dithering on here, the sp moved up and I think the day's loss was more or less eliminated so you were right in a way.
However, no doubt had I bought it would have gone the other way. I think I had better head over to the What are you buying? board as I really don't have a clue what to do.

No problem Lorna, thank you. As for what to do, I'm just carrying on with my monthly top ups. I'm focusing on the known dividend payers (hopefully) first, before I even look at my 8 cutters in my 28 share HYP. I'm lucky that I don't rely on the dividends to live on just yet, maybe in a year or so? I feel for those of our team that do though.

Ian.

The 8 cutters - now there's an interesting question. Do we disallow dividend cutters for five years, as is sometimes suggested, or make an exception due to this problem being so widespread?

[Arborbridge]

Wizard:

I noticed your little jest, and I'm taking it on the chin.

You didn't mention the outings to the Royal Ballet, so you went easy on me.

[idpickering]

The 8 cutters - now there's an interesting question. Do we disallow dividend cutters for five years, as is sometimes suggested, or make an exception due to this problem being so widespread?

An interesting question indeed Arb. There is a temptation to buy more of my cutters, in the hope that I’m buying on the cheap, with the hope of still more dividends in the future. We’ll see how this virus and the markets pan out over the next few months, but i’m of the opinion that the firms that have cut have taken action in these unusual times, and it is almost a one off. With this in mind, I think I could forgive them, and be relaxed about the five years of them being disallowed. Going forward, I will weigh each share on its own merits, before I’d top up a cutter. But I can honestly see me buying before that five years is up. But not yet. I want the ones that are hopefully going to pay out first.

Ian

[tjh290633]

The 8 cutters - now there's an interesting question. Do we disallow dividend cutters for five years, as is sometimes suggested, or make an exception due to this problem being so widespread?

Disqualify for now, but if the dividend is reinstated quickly, let them back in.

TJH

[Bouleversee]

Which of your other 20 shares do you know are going to pay, Ian?

[PinkDalek]

Some investors will have different tax implications depending on whether they receive their return by way of dividend income, or by return of capital.

However, I could be wrong but I thought one could no longer be given that choice and it had to be taken as interest now; I may be mixing up with something else. Unfortunately, I do have to do a tax return.

It wouldn't have to be 'taken as interest a dividend' but yes you are correct. If you are given an 'either/or' choice the proceeds are treated as (taxable) dividend income come what may.

It has been that way for many a year and thus the dearth of the old B share schemes and I know we discussed it on Taxes Practical way back (probably on TMF). Gengu wrote quite a few papers on the subject but here's a randomly found link:

https://www.youinvest.co.uk/articles/investmentarticles/35990/new-tax-rules-could-strike-death-knell-b-share-schemes

[Bouleversee]

Thanks, PD. My fingers don't always type what is in my mind; i meant to say "income" but good to know my memory hasn't totally deserted me.

[idpickering]

Which of your other 20 shares do you know are going to pay, Ian?

That's a fair comment Lorna. Who knows? I'm definitely not certain, but I do have more faith in the likes of AZN, GSK, BATS, RDSB and BP.

Ian.

[Dod101]

What of course is worrying about all of this 'Will they or won't they pay?' is that it would not surprise me if some of those that are currently paying their dividend (such as Diageo) may decide that they cannot afford to at the next payment date. Diagoe's dividend paid today reflects trading before the crisis got under way. I cannot comment of Tesco since I do not hold it.

Dod

[Arborbridge]

What of course is worrying about all of this 'Will they or won't they pay?' is that it would not surprise me if some of those that are currently paying their dividend (such as Diageo) may decide that they cannot afford to at the next payment date. Diagoe's dividend paid today reflects trading before the crisis got under way. I cannot comment of Tesco since I do not hold it.

Dod

We're squeezed at both ends, so to speak. The future prospects are bleak - arguably, even for DGE - so they are "prudently" hoarding cash. This means even our dividends due from the good times are being held.
I feel this has become more of a "mood" which has caught on, rather than a general necessity. It could become almost fashionable to cancel dividends in order to be seen to be doing something, or to keep up with the Jones's.

Arb.

[Dod101]

I doubt that Tesco will be able to pay its dividend. I am a disinterested spectator but I do not see how it can take the rates relief and then pay a dividend . It just not wash. If they took no government help they could of course do what they want, but as it is?

Dod

[miner1000]

I doubt that Tesco will be able to pay its dividend. I am a disinterested spectator but I do not see how it can take the rates relief and then pay a dividend . It just not wash. If they took no government help they could of course do what they want, but as it is?

Dod

I hope for my sake and Lorna's that you are wrong Dod. I see Tesco has already stated as to why it can still pay a dividend, I e the gains made from the rates rebate are offset by higher costs due to Covid.

To answer one of Lorna's earlier question I believe one should hold on to Tesco going forward. I have held Tesco and Morrison through thick and thin (from when they were both "obvious" HYP shares (I am LTBH). I bought more Morrison recently. Lewis and Potts have done a great job of turning around both companies and with the Booker acquisition Tesco has a different and brighter future after Covid. These two are/will replace some of the income lost from the current group of HYP faves that have cut or will cut future divis.

The benefit of diversification. Every dog has his day, and self healing really can work (as long as, for a decent company, you can afford to wait).

[Wizard]

What of course is worrying about all of this 'Will they or won't they pay?' is that it would not surprise me if some of those that are currently paying their dividend (such as Diageo) may decide that they cannot afford to at the next payment date. Diagoe's dividend paid today reflects trading before the crisis got under way. I cannot comment of Tesco since I do not hold it.

Dod

We're squeezed at both ends, so to speak. The future prospects are bleak - arguably, even for DGE - so they are "prudently" hoarding cash. This means even our dividends due from the good times are being held.
I feel this has become more of a "mood" which has caught on, rather than a general necessity. It could become almost fashionable to cancel dividends in order to be seen to be doing something, or to keep up with the Jones's.

Arb.

For some I think the boards will see this as just the cover they need to get the dividend down to a level they are more comfortable with. If that is the case we may see dividends suspended for a shot period and then restart pretty quickly, but at a reduced level. By that stage the boards will hope the resumption will be cheered by shareholders despite being at a lower level, something being better than nothing.

I thought this would happen at the outset and still see nothing that is changing my mind. I think it will be many years before most people see the income per unit get back to where it was in the last full year of their HYPs. At this stage the capital values of many HYP shares, certainly almost all of the ones I hold, have been decimated so for me there is simply no point selling them as I do not need the income now.

[Dod101]

I hope I am wrong and I appreciate that the dividend payment is apparently based on the results for last year. To that extent were I a shareholder in Tesco I could easily argue in favour of the dividend but it looks a bit weak when we have Tesco accepting business rates relief from the government package and in no danger of going out of business but pleading higher costs. I should think most businesses which are able to continue trading have higher costs but most businesses are not trading and therein lies the difference.

Hand over the relief to the NHS or whatever and then they can do what they like with their head held high.

Dod

[Wizard]

I hope I am wrong and I appreciate that the dividend payment is apparently based on the results for last year. To that extent were I a shareholder in Tesco I could easily argue in favour of the dividend but it looks a bit weak when we have Tesco accepting business rates relief from the government package and in no danger of going out of business but pleading higher costs. I should think most businesses which are able to continue trading have higher costs but most businesses are not trading and therein lies the difference.

Hand over the relief to the NHS or whatever and then they can do what they like with their head held high.

Dod

I agree Dod. And anyway, of course their costs are up, so are their sales, by 30% no less! Whatever the rational and mathematical arguments I think it will become politically impossible for them to accept the relief and pay a dividend. I think the question is which way they will jump, forego the relief or can the dividend. If I were a director I would think I had little choice but to take the free money being given to the business, that must be the better answer for shareholders overall in the long term, whatever it means for the small number of holders that rely on the income now.