Ann: Special Dividend , page-6

madamswer I would never even consider getting involved in someone else's investment decisions but I am very pleased that you have opened this discussion topic.

I've spent a bit of time considering the companies decision to issue a special fully franked dividend of $1.00 per share and haven't really been able to work out the plan.
If the spec div had just been issued I could see that they were returning to shareholders part of the companies "significant retained earnings". However when it is associated with the implementation of the DRP which will apply to the special dividend - and - "The board has determined that the issue price of shares under the DRP with respect to the Special Dividend will also be subject to a price cap of $5.50 per share". I become confused. (Share price at time of announcement approx $6.50)

The only guidance we get is; "The board believes that this capital management initiative provides substantial value to shareholders and will assist to improve Korvest's shareholder spread and the liquidity of its shares".

Let's take each part of that statement and here I would really appreciate other views.

"provide substantial value to shareholder...." We'll get $1 ff per share. However there will then be $1 per share less in retained company earnings available for future acquistions and/or expansion.

"will assist to improve Korvest's shareholder spread..." They are just paying out cash to existing shareholders. Do they expect institutional and/or individual shareholders to sell some of their shares so that there are more shareholders?? I don't understand this statement.

"and the liquidity of its shares...." I'm guessing a lot of individual shareholders will use the DRP that is at a deep discount to the share price even before the ann. That will mean more shares on issue but necessarily greater volumes traded. A share split would be a far more efficient way to create more shares.

That also means a percentage of the distributed div will go straight back to retained earnings.

What happens after the div date. You would guess at least a $1 (+franking credits) drop plus some impact from the fact that if you buy prior to the DRP date you can use your div to get some shares at $5.50.

So how much of a gain is this to current share holders? We started with a share price of approx $6.50 and earnings retained with the company. We end up with $1 ff per share and a share price of $?? and a few more shares on issue.

Thanks for asking the question. I look forward to everyones views.


Profit guidance update on the 30/04/2014: "It is now expected that second half trading will be at levels approximately 20% greater than those of the first half".