I have a bit of spare time today, so thought it might be handy to try to demonstrate with examples what others are saying on this thread, i.e. the 38c distribution has a value of 50c and therefore if it is true that EXS shares will trade at 40c ex-dividend, then funds will buy the stock up yo 90c (40c plus 50C) prior to the ex-dividend date.
Let's look at the scenario for individuals on the highest marginal tax rate of 46.5%, superfunds with 15% tax rate and tax exempts on 0%.
Now, this assumes the shares trade at 40c ex-dividend, but we haven't established why this would be the case as yet.
So assumptions are: Buy shares at 90c (this is optimal for each scenario below) Sell shares at 40c ex-dividend Distribution is 10c share capital return and 28c full-franked dividend (as per the ruling lodged with the ATO)
Individuals (46.5% tax rate) can pay 90c now - Pay 90c cash and sell for 40c cash, for a cash loss of 50c - Receive 38c cash distribution - cost base in shares is 80c (90c less 10c), therefore yielding a capital loss of 40c, which has a value of 18.5c if you have capital gains in future to offset - Dividend is grossed-up to 40c (28c plus 12c franking credit). Tax payable @ 46.5% is 18c, less 12c franking credit, for 6c in total - Therefore, net after-tax cash position is -50c+38c+18.5c-6c, which is just over break-even - Therefore, you should pay up to 90c for the shares if you can use the capital losses at some point in future - You should still pay 71.5c if you can't ever use any capital losses
Superfunds (15% tax rate) should pay 90c now - Pay 90c cash and sell for 40c cash, for a cash loss of 50c - Receive 38c cash distribution - cost base in shares is 80c (90c less 10c), therefore yielding a capital loss of 40c, which has a value of 6c if you have capital gains in future to offset - Dividend is grossed-up to 40c (28c plus 12c franking credit). Tax payable @ 15% is 6c, less 12c franking credit, for a 6c cash tax refund from the ATO - Therefore, net after-tax cash position is -50c+38c+6c+6c, which is break-even - Therefore, you should pay up to 90c for the shares if you can use the capital losses at some point in future - You should still pay 84c if you can't ever use any capital losses
Tax exempts (0% tax rate) should pay 90c now - Pay 90c cash and sell for 40c cash, for a cash loss of 50c - Receive 38c cash distribution - No value in capital losses - Dividend is grossed-up to 40c (28c plus 12c franking credit). Tax payable @ 0% is 0c, less 12c franking credit, for a 12c cash tax refund from the ATO - Therefore, net after-tax cash position is -50c+38c+0c+12c, which is break-even - Therefore, you should pay up to 90c for the shares in all circumstances
If you think the shares will trade for less than 40c ex-dividend, then substitute that number into the above.
Another way of looking at it is if the share price stays at 63c, then the share price can fall as low as 13c (63c less 50c) before you start losing money. 13c a share equates to a market cap of just $45m, which seems ridiculous given pre-tax cash-backing will be over $100m at that point.
EXS Price at posting:
63.5¢ Sentiment: Buy Disclosure: Held
