Irish Dividends v UK Dividends

Gordon Gekko said:
Which would you prefer?

a) to receive a dividend which is likely to be taxed at 52%?

b) for the management of a great company to reinvest the spare cash in profitable ventures with a view to growing the value of your shareholding and enabling you to take gains whenever you like and only pay 33% tax?
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sounds great but how do you time ( in a favourable way ) when to draw down a portion of your holding in a company which pays no dividend ? , even great companies go through extended ( at least a year ) periods when there stock is in the ditch , a certain airline went through it recently and is still nearly 20% off its all time high

with the dividend payer , you receive a percentage each quarter regardless of the underlying stock price , i can see the appeal for regular people who dont have to worry about the high tax bracket to begin with
 
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galway_blow_in said:
with the dividend payer , you receive a percentage each quarter regardless of the underlying stock price , i can see the appeal for regular people who dont have to worry about the high tax bracket to begin with
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And every time you receive a dividend payment the value of your stock reduces by precisely the same amount.

Dividends are not free money.
 
galway_blow_in said:
sounds great but how do you time ( in a favourable way ) when to draw down a portion of your holding in a company which pays no dividend ? , even great companies go through extended ( at least a year ) periods when there stock is in the ditch , a certain airline went through it recently and is still nearly 20% off its all time high

with the dividend payer , you receive a percentage each quarter regardless of the underlying stock price , i can see the appeal for regular people who dont have to worry about the high tax bracket to begin with
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I hardly think it’s fair to classify people whose income exceeds €34k a year as “non-regular”!
 
Daddy Ireland said:
Your opinion to sell some shares if one wants an income is purely a tax driven one.
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Absolutely. And the dividend policy of most cash generating companies is tax driven, based on their country and largest shareholders circumstances. In the UK 2/3 private individuals who receive dividend income pay absolutely no tax on it. It other countries companies return shareholder funds in other ways, usually through share buybacks.
 
Daddy Ireland said:
I think it is very blase of you to say people shouldnt depend on dividend income as part of their income and should in your opinion just sell some shares if they want income.
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galway_blow_in said:
that makes no sense to me
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I am surprised that so many people have difficulties understanding this.

If a company is worth €100,000 and declares a dividend of €5,000, it's stock market value should fall by €5,000 to €95,000.

If you have €100,000 of shares in a company and it doesn't pay any dividend, you can achieve the same effect by selling €5,000 worth of shares.

Daddy Ireland said:
Many people want to park their money in great companies that pay good dividends and in the hope over time that their principal can grow too.
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I want to park my money in great companies and get good capital growth. If the company does not pay dividends, it means that I can choose when to realise some of that growth.

It did not suit me a few years ago when Ryanair did pay a substantial dividend. I didn't need the cash at the time. It came in towards the end of the year after I had paid my preliminary tax, which means that I had estimated my preliminary tax wrong and had to correct it.

It suited me much better when they bought back shares.

There was a very odd thing a few years ago in the UK, when the banks were paying generous dividends and having rights issues at the same time. I remember reading a report that over a period of 5 years or so, they had raised the same in rights issues as they paid out in dividends. So ordinary shareholders were subscribing capital to have it paid back to them as taxable income. It made no sense at all.

A company should be able to say to its shareholders: "We are doing very well. We see some great opportunities and need more capital. So we are not going to pay any dividends for a few years, as that is a lot cheaper and more tax-efficient than paying dividends and having expensive rights issues." Unfortunately, if a company cuts or passes its dividend, the stock market takes it as a sign that the company is in difficulty.

Brendan
 
i understand the deduction exercise ( on ex dividend day ) , i just dont see how it matters ? ,( not like if you bought a hundred shares , on ex dividend day you loose six of them ) i can think of a british dutch oil major which last july had a dividend yield of nearly 8% , the stock price is up 25% since then yet the dividend was also paid

win win ?
 
Hi Galway

You are confusing different things. If Shell pays a dividend of €1 per share, its share price should fall by €1, all other things being equal.

But there are other issues affecting the price of Shell. So Shell could pay a dividend of €1 and see its price fall by €6 or rise by €8.

The dividend payment is only one of the many issues which affect the share price.

There is no "win win". A company can't create magic money by paying high dividends.

The higher the dividend, the greater the price adjustment downwards, although this is not easy to see against the background of the other issues which affect the share price.

Brendan
 
Brendan Burgess said:
Hi Galway

You are confusing different things. If Shell pays a dividend of €1 per share, its share price should fall by €1, all other things being equal.

But there are other issues affecting the price of Shell. So Shell could pay a dividend of €1 and see its price fall by €6 or rise by €8.

The dividend payment is only one of the many issues which affect the share price.

There is no "win win". A company can't create magic money by paying high dividends.

The higher the dividend, the greater the price adjustment downwards, although this is not easy to see against the background of the other issues which affect the share price.

Brendan
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but why does it matter if the share price adjusts in order to facilitate the dividend payment ?, the stock price often has regained what is lost within a relatively short period of time and you still have your dividend , in a bear market , everything goes down so you would not want to be offloading shares in amazon if its price is down 50% for a few years , with the boring dividend payer , your just collecting the quarterly cash payout while hoping the market eventually turns a corner and with it your low PE dividend payer

why else would people buy the likes of telecoms if dividends are misleading ? , dont pension funds own these boring utilities which are viewed as income creators , people who manage pension funds would tend to be well informed
 
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Has every Economic Nobel prize winner ever got it wrong?...

galway_blow_in said:
the stock price often has regained what is lost within a relatively short period of time and you still have your dividend
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In this case, all other things being equal, the share price would have risen even more if there hadn't been a dividend.

galway_blow_in said:
why else would people buy the likes of telecoms if dividends are misleading ?
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Telecoms have pretty predictable cash generation patterns. Without differing tax treatment, an investor shouldn't care whether excess cashflow is returned to shareholders via dividend or share buybacks (at&t for example does both).

galway_blow_in said:
dont pension funds own these boring utilities which are viewed as income creators ,
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Pension funds don't care about the tax treatment, they invest for total return, and are investing for the positive cashflow generated by the company, not the dividend.

Rather than reading older economic theory by Nobel prize winners, there was a recent paper 'The Dividend Disconnect' which examines the topic and the behaviours of investors. Some interesting interviews of the authors on YouTube to save reading a 60 page paper!
 
Not everyone's in the same boat. I gave up work partly because I was sick of 50%+ tax (though mostly because I wanted to do something else). Now my dividends get taxed at 0-20%, much less than capital gains.
 
Brendan,

Ok I will take your advice and stay away from investment.. ONn the other hand I was lucky I didn't take your advice from your RTE slot of 16th Sep 2008.
 
dub_nerd said:
Not everyone's in the same boat. I gave up work partly because I was sick of 50%+ tax (though mostly because I wanted to do something else). Now my dividends get taxed at 0-20%, much less than capital gains.
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Agreed, but with respect I’d say you are a rare exemption.
 
He's not a rare exception Gordon. An exception maybe but so will soon be an exception too. So there are more of us out there than you think.
 
RedOnion said:
Absolutely. And the dividend policy of most cash generating companies is tax driven, based on their country and largest shareholders circumstances. In the UK 2/3 private individuals who receive dividend income pay absolutely no tax on it. It other countries companies return shareholder funds in other ways, usually through share buybacks.
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But in UK you can earn upto £5000 dividends tax free (i only learned this recently from another poster) which explains why so many people do not pay tax on dividends. Ireland has diverged substantially from UK in terms of taxation over last 20 years, if more taxes introduced in ireland over next few years (which seems to be the trend) there could be big exodus of high skilled people there despite brexit.
 
joe sod said:
But in UK you can earn upto £5000 dividends tax free (i only learned this recently from another poster) which explains why so many people do not pay tax on dividends
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That was exactly my point. In the UK small retail investors, in particular pensioners, want dividends, because they can get 5k tax free.
Their CGT is different to here as well.

Edit: sorry I was typing on phone, and I somehow deleted half my original post earlier re the 5k threshold, so I didn't make my point as clearly as I meant!
 
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