Tesco share special dividend - seems like a ripoff to me, how is it not?

[Kumagoro]

So I have a handful of Tesco shares and just keep them as I get about a £10-£15 a year in dividends and it doesnt seem very cost effective to sell them based on fees and stuff.

Tesco recently sold off their Lotus stores in Malaysia and Thailand or whatever and got about 7-8 Billion. Apparantly something like half of it was used to pay off their debt to the pension scheme and possibly some other things but also about half was used to pay a special dividend. Now they have sold off a section of the company so therefore the company isnt worth as much as it was before, seeing as it is now smaller. As half of it was used to pay off a debt anyway it doesnt make as much difference, so paying back the rest to shareholders means that the share price would fall.

So they decided that what they will do is pay a dividend of 50.93p per share, but to keep the share price the same and stop it from falling they will reduce the number of shares. Therefore I have gone from 135 shares to 106 and have been given 68.76 quid.

Considering this, in my mind they have just had off me 29 shares at 50.93p each when the share price is or was about £3.10 around that time. Straight away in relation to this the shares fell to £225... so it doesnt look like their plan particulaly worked at all (at least their public plan not there hidden reall plan). Even if the share price had not of changed and there had been no dividend I would still have been better off selling 29 shares at £3.10 and got 90 quid (ignoring fees and stuff).

Now here I am with only 106 shares worth a 1/3 less than they were..... I feel sorry for the people who may have lots of shares like people who have worked for them and did all their share benefits. Many potentially would had to pay a lot of tax and they would have likely been not very wealthy.

So in the long run if I hang on to my shares I will be getting less of a dividend unless they happen pay out way higher dividends for a long time...


I cant see why they wouldnt just do a stock consolidation first pushing the share price up then doing the dividend to bring the share price back down... Or really just use the money to buy shares pushing up the price..

Im not knowledgable about shares in general can someone explain how is this not just a scam of some kind?

[kalniel]

Put basically, your share of the company hasn't changed. Whether they express that share as 135 unit1s or 106 unit2s doesn't matter, except now if they pay 10p per unit1 and keep paying 10p per unit2 what they're doing is reducing the amount (in % terms) they're paying as dividends.

They don't have much to do with how much each share is worth though, that's set by whatever someone is willing to pay for them, and it could be that by effectively reducing the dividend % the market now thinks the shares are worth less and the value of your share of the company falls.

EDIT: or actually I could read.. sounds like they're not reissuing, but have forced you to sell shares for a certain amount per share. I guess that could happen if a majority of shareholders agreed. Example: board recommends that a new funder can buy 1/3rd of the shares of the company for a fixed fee. If the board has 1/3rd of the shares they could sell from their holdings, or they could get the shareholders to agree that everyone will sell 1/3rd of their individual holdings for that fee. Key thing is they need the share holders to agree to it, which is where voting comes in.

[jim]

It's a bit like planning to cut a cake into four quarters, but then realising that you're actually only sharing it between two people, so instead you'll cut it into two halves instead.

The problem is that at the beginning, the two people have been told they're getting 2 shares each. Then at the end, they only get 1 share. Both probably feel cheated. What gives? In reality, either way, they were going to get half of a cake.

What complicates this matter is that you don't see yourself as owning x% of Tesco, you see yourself as having 135 shares worth ~£418. And those two markers (number of shares and price) are the only ones that retail investors typically pay attention to.

You can treat the special dividend as reducing the value of your holding, so you've been given £68.76 in cash to account for the fact that it causes your shares to drop by £68.76 in value. You haven't lost out there.

The problem is that, based on what you're saying, the value of the shares has coincidentally dropped as well. Why that is, I'm not sure. I haven't looked at any of their data, but based on what you're saying it must have done. Maybe because big shareholders disagree with how they're using the proceeds of the sale? Maybe because they think the market conditions aren't as good as they were? You get the idea. It may feel like it's directly part of the share swap, but it almost certainly isn't.

If they'd used the money for a buyback, the value would've gone up, but you wouldn't have got your £68.76 in cash. So not necessarily a good thing. If they'd done the stock consolidation first, it wouldn't have made a difference.

[Kumagoro]

There indeed was a vote on this so it must be benefiting some of the major players who own most of the shares like pension funds, hedge funds etc. somehow. My guess is that those who know how things are likely to play out can get a major advantage over those that don't and so make a lot more money playing the system. Which in my eyes is unethical to say the least.

I am aware that my ownership in the company is the same as before percentage wise and thus my future dividends are likely to be the same assuming they pay what they usually do monetarily and not % wise.... It would just appear that in the short to medium term overall the value of the shares have fallen more than the value of the dividend significantly.

I would post a image of the share price falling off a cliff in a day but I cant seem to post images here any more. I must be getting old and don't know how to use it anymore but all I see is adding URL ones now.

[kalniel]

Yes, there will have been a benefit that was good enough to persuade the majority of shareholders to agree to it - it may have been getting access to some kind of expertise, or whatever, that means they think that in the long run they will profit more from agreeing. As a shareholder, you'll also profit more from the deal, if all goes as planned, but of course, your timeframe for when you want a profit might be different from someone elses, or it might be the change has been made to fit some other majority shareholder wish - there are some investment groups that deliberately buy up shares to get a board position to influence companies to be more environmentally friendly for eg.

As for shares falling in value, well yes, shares can do that.

Images always needed URL, Hexus doesn't host images save for the few you can put in your Hexus gallery (if that's still a thing)

[cheesemp]

It reminds me of the gamestop share run but in reverse. Ultimately these voting rights are excised by the big hedge and pension funds and they will vote for their benefit. We're just the minnows who have to deal with the consequences. Its one of the big reasons I don't like share investments - unless you have expertise and Billions to throw around you have no control. Unfortunately shares are one of the few positive returns right now.

[ik9000]

There indeed was a vote on this so it must be benefiting some of the major players who own most of the shares like pension funds, hedge funds etc. somehow. My guess is that those who know how things are likely to play out can get a major advantage over those that don't and so make a lot more money playing the system. Which in my eyes is unethical to say the least.

I am aware that my ownership in the company is the same as before percentage wise and thus my future dividends are likely to be the same assuming they pay what they usually do monetarily and not % wise.... It would just appear that in the short to medium term overall the value of the shares have fallen more than the value of the dividend significantly.

I would post a image of the share price falling off a cliff in a day but I cant seem to post images here any more. I must be getting old and don't know how to use it anymore but all I see is adding URL ones now.

There is a small allowance for forum hosted images but tbh sites like imgur or imgbb et al are the way to go - I find them quicker to use, and means I can use pics in other forums (forae?) and discord etc. As for shares - can't help you. Never understood it, seems too much like gambling for my liking.