Soco dividend(s)

25th Aug '12 by MadDutch

5 comments 11371 reads

I posted this in the other place today, in reply to some posts knocking Soco.

I can help this debate by adding some previously unpublished information re dividends.

I posted my intention to ask for them on Stockopedia before the 2011 AGM, and received some considerable flack for suggesting it; I was advised not to ask, from an unlikely alliance of ee and Isaac, who can be safely in denial since I cannot be bothered to trawl for the links! But I do not take no for an answer; so I ignored the advice and asked for dividends, and to the best of my knowledge, that started the debate which has continued up to this day.

I repeated my request again at the 2012 AGM. I had replies from Ed, Roger and Rui, but remained standing because my question was not answered (none of them told me when……..). All 3 replies were positive in their intention to pay, and one of the replies, from memory from Roger, said that the directors were shareholders too, so I sat down. After the meeting, Rui de Silva came over to speak to me and told me that the dividend (or other return of capital) matter was of great interest to the directors, as well as to us.

ee has rightly posted that dividends are not tax efficient for most big shareholders, so I asked Brewin Dolphin how other types of capital returns are done. I sent it to Roger Cagle and am overdue to remind him because no reply as been seen. I will post my Soco letter if anyone is interested.

MadDutch.

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flyinghorse

25th Aug '12

I guess for me dividends are tax efficient as most of my SOCO is in my SIPP/ISA;s. Unfortunately we be minnows.

If dividends are not tax efficient for the big boys -what is and is it in place or being put in place,as it seems to be a requirement for a sale?

FH

emptyend

I guess for me dividends are tax efficient as most of my SOCO is in my SIPP/ISA;s.

No they aren't. Dividends received in ISA are subject to a flat rate charge (10% I think, though it has little impact on me at present). You used to get that rebated before Gordon Brown removed the rebate.

Regarding MadDutch's header:

I posted my intention to ask for them on Stockopedia before the 2011 AGM, and received some considerable flack for suggesting it; I was advised not to ask, from an unlikely alliance of ee and Isaac, who can be safely in denial since I cannot be bothered to trawl for the links! But I do not take no for an answer; so I ignored the advice and asked for dividends, and to the best of my knowledge, that started the debate which has continued up to this day.

That is correct. I advised you not to bother asking because, at that point, there wasn't a cat's chance in hell that a dividend would be paid. That situation has changed this year (and I didn't try to dissuade you from asking this year, because it was plainly now appropriate to do so - even though I didn't think they would get further than merely signalling an interest in paying one), as was evident from your comments :

I repeated my request again at the 2012 AGM. I had replies from Ed, Roger and Rui, but remained standing because my question was not answered (none of them told me when……..). All 3 replies were positive in their intention to pay, and one of the replies, from memory from Roger, said that the directors were shareholders too, so I sat down. After the meeting, Rui de Silva came over to speak to me and told me that the dividend (or other return of capital) matter was of great interest to the directors, as well as to us.

As it happens, I asked a number of questions this week after the results - and can confirm that the comment I have highlighted above is correct. It was pointed out to me that the Directors haven't "taken anything off the table" - and would therefore certainly be interested in a distribution of some kind. I have NEVER had any doubt that they would be of this view at this point, with TGT throwing off cash.....it is only the form and the timing that remains uncertain - and I have little doubt that a sale of assets followed by a return of capital in some way would be the best route for all of us!

There really is no need at all to keep bothering management repeatedly on this point - they all understand it perfectly and share the same agenda. I'm certain that it will be addressed by one route or another in the next 6 months.

27th Aug '12

In reply to ee #2
The bulk for me is in a SIPP,and the tax rate of 10% in an Isa is "relatively" efficient for a mere minnow.

I think granting a dividend is within their control,whilst a sale is not so controlable,so I say start giving a dividend.

The problem with SOCO is that small shareholders are just playing kowtow to the controling interest and its getting boring-but then I am perhaps just impatient,but its been a long wait.
FH

LongbeardRanger

I guess for me dividends are tax efficient as most of my SOCO is in my SIPP/ISA;s.

No they aren't. Dividends received in ISA are subject to a flat rate charge (10% I think, though it has little impact on me at present). You used to get that rebated before Gordon Brown removed the rebate.

Just a minor point on the taxation of dividends: when held in an ISA, dividends are tax free, in reality. The taxation of dividends is subject to a rather strange historical anomaly which is a result of the changes ee refers to, but the consequences are not quite as he says (what's that? Gordon Brown tinkering and creating a system that doesn't work sensibly? Surely not...). For tax purposes, dividends are received with a notional 10% tax credit, so that (for tax purposes only) a dividend of 100 'counts as' a dividend of 111 (i.e. 111* 0.9). That tax credit is notional and does not represent cash tax paid or deducted, whether by the investor or the payor company (whereas under the old system, IIRC, there was a deduction at source). When assessing tax payable on a dividend receipt, investors get credit for that 10% notional tax, which reduces the effective dividend tax rate (this is why dividends are such an effective form of taxable income for individuals: the rate is lower, and is further reduced by the notional credit).

However, because it is purely notional and not representative of a payment made by anyone to the exchequer, the tax credit is not reclaimable. It can only be offset against taxable dividend income so is not of relevance in a tax exempt wrapper such as an ISA or SIPP.

The simplest way of thinking about this is that if a company pays £100 of dividend, no tax is paid at that stage, and £100 ends up in the hands of the investor. If the investor is tax exempt (e.g. by holding in an ISA) then that's the end of the story. If the investor pays income tax, then the investor will potentially have to make a further payment at his marginal dividend tax rate (zero unless a higher rate tax payer). If a higher rate payer, that rate is 32% but credit is given for the 10% notional divi tax, so the effective rate is 22% of the grossed-up dividend (i.e. 110 * 0.22), or 24.44% of the actual cash received (in other words, the effective 'real' tax rate of a dividend is 24.44%).

Confusing!

In more on-topic matters, seems to me the direction of travel is clear on distributions to shareholders: absent unforseen events, we can expect one to be made within the next 6-12 months, it seems to me, and I would expect it to be in tax efficient form (probably via a b share scheme, to allow shareholders the option of capital or income receipts).

I admit I'm not an expert on the payment or receipt of dividends..... ;-)

....but I'm really not at all sure that this is correct:

When assessing tax payable on a dividend receipt, investors get credit for that 10% notional tax, which reduces the effective dividend tax rate

I quote from the Direct.Gov website:

if you're a basic rate taxpayer inside or outside an ISA you pay tax at 10 per cent on dividend income; this is taken as a 'tax credit' before you receive the dividend and cannot be refunded for ISA investments

IIRC the old system (ie as ISAs were originally conceived) used to be that such tax credits were refunded.

As you say though, its a bit off-topic (as is the point that interest arising in stocks and shares ISAs is subject to a "charge" ....which is apparently not a "tax" - but is still cash deducted! Not that that is material at present either....but that was what I was erroneously thinking of when I talked about a flat rate charge).

More topically, I agree with this point:

Certain to be addressed at or before the full year prelims in February, IMO.

Soco dividend(s)

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MadDutch

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