Berkeley Group final dividend reduction

[Davidsb]

Following on from a series of share buy-backs over the past couple of weeks, the BKG final dividend has reduced from 80p/share to 65p/share. With no buybacks during the current half year, the final dividend would have been 103p/share.

Assuming no further purchases, this will make the full-year dividend 121p, for a 3.3% yield. The pre-buyback full year dividend would have been 205p, for an estimated yield of 5.6%.

The latest purchase is here:-

https://www.investegate.co.uk/berkeley- ... ds%20Alert

The final payout will be announced on 16th August, the shares go ex-dividend on 23rd August, and the payment is scheduled to take place on 14th September.

[spiderbill]

And of course the other worrying thing is that during these buybacks the share price has fallen from 4300 to 3700. What would it have been down to without them?

Not really a HYP share any more.

[Bouleversee]

And of course the other worrying thing is that during these buybacks the share price has fallen from 4300 to 3700. What would it have been down to without them?

Not really a HYP share any more.

Good question. I don't follow how this is "returning money to shareholders". True, there will now be fewer shareholders to share the dividend pot between but if a lot of money had not been spent on buying back shares, that dividend pot would have been much larger and, although I haven't attempted to do any calculations, is it not conceivable that the dividend might have been able to be a bit higher, which would have attracted more buyers, thereby increasing the s.p? I must be missing something because I can't see what has been achieved by this exercise. No doubt someone will enlighten me.

[Dod101]

The dividend reduction follows the announcement in June with their annual results statement. They said that profits would fall because the land bank they built up at low prices in the aftermath of the financial crisis is being used up and they will revert to more 'normal' times.

And of course they have given an undertaking to return cash to shareholders over a period up to is it 2021? so no surprises there.

Anyway for a HYP capital does not matter although dividends do.

I do not hold (any housebuilders)

Dod

[Davidsb]

Hi spiderbill -


Not really a HYP share any more.

I wish someone would tell Digital Look, then - BKG keeps popping up on my DL HYP screen, with forecast yields of 5.4% for each of the two years to April 2019 (£2.0114) and April 2020 (£2.0094).

Looks tasty, until you work out what you will actually receive. Following yesterday's purchase, the 2018 total dividend will be somewhere south of £1.17.

;¬(

[Gengulphus]

Good question. I don't follow how this is "returning money to shareholders". True, there will now be fewer shareholders to share the dividend pot between but if a lot of money had not been spent on buying back shares, that dividend pot would have been much larger and, although I haven't attempted to do any calculations, is it not conceivable that the dividend might have been able to be a bit higher, ...

It's not just conceivable - it is actually true. The easy way to see that is that when the company buys back N shares, they pay out the market value of N shares. Had they not done so, they would have had to pay out the dividends on N more shares than they did (*). So after taking both effects of the buybacks into account, they would have had an extra amount of cash equal to (market value - dividends) on N shares available. That amount of extra cash, which is very obviously positive, would have been available to increase the dividend paid to all shareholders.

The flip side is that that's only about this year's dividend pot. With the buybacks having happened, next year's dividend pot will be split between fewer shareholders, increasing the dividend for no cash cost in that year (**), and the same will happen every subsequent year. And of course, if the buybacks hadn't been done, there will be no such increase, and that too will also apply every subsequent year.

So from the dividend point of view, share buybacks are a "jam tomorrow rather than jam today" deal - the "jam tomorrow" being somewhat increased dividends in all future years, the "jam today" being that this year's dividend could have been quite significantly larger.

(*) On the assumption that the buybacks all happened before any of the dividends for the year went ex-dividend. That assumption is pretty obviously not true, but it means that later buybacks would have saved somewhat less in the way of dividends than the argument suggests, which would have increased the cash effect difference in the above argument, i.e. the extra cash available to be paid out as an extra dividend. I.e. the above argument is slightly understated.

(**) Of course, the company might decide on share buybacks next year as well, in which case a similar argument will apply to the cash spent on them that year: it will reduce the dividend payable next year, but increase the dividend payable in the year after next and all subsequent years.

... which would have attracted more buyers, thereby increasing the s.p? I must be missing something because I can't see what has been achieved by this exercise. No doubt someone will enlighten me.

What is definitely achieved by the share buybacks is the "jam tomorrow rather than jam today" deal I describe above. Shareholders will of course definitely vary about whether jam today or jam tomorrow is what they're after, and I can well imagine from what you've previously said about your situation that you have good reason to prefer jam today. But company directors are supposed to take all shareholders' views into account, so I don't think there is any reasonable argument against them deciding that some jam today, some jam tomorrow is a reasonable way to go.

Shareholders' preferences might also be influenced by tax issues, but that too is heavily dependent on the shareholder. In the case of HYPer and other individual shareholders, many of them will have their shareholdings entirely in tax wrappers and so won't care, or not care because they are within their various tax allowances. Others might have Income Tax issues, CGT issues or both; some of those who have both might care most about the Income Tax issues (e.g. because of the 32.5% or 38.1% rate of Income Tax on dividends once out of basic rate, which is quite a bit above any CGT rate), while others might regard the 7.5% basic rate as refreshingly low and be able to make a good deal of use of it (e.g. by mking significant pension contributions) and care much more about CGT issues.

In short, not a subject on which individual shareholders can expect to get general agreement from other individual shareholders, let alone from boards of directors!

Gengulphus

[Bouleversee]

Thanks, Geng. I'll just have to hope I get a few more tomorrows. I can see the attraction from the directors' point of view, especially as the tax allowance for dividends has reduced and pension fund contributions are capped, not forgetting that LTIPs depend on increases in share price I believe, though I have never spent time going into their intricacies. But for those on relatively low incomes and most of their savings going into pensions or ISAs, the higher dividend would in most cases be more appealing.

[Davidsb]

The distinction between BKG and most (if not all) other companies is that the Directors announce a value per share per year as 'returns to shareholders' - this number is then regarded by DL and others as a dividend. The current 'returns to shareholders' value is £2 per share per year.

Share buybacks are then actioned, using the funds allocated by the Directors as above - clearly the amount spent on these buybacks reduces the amount available to pay out as dividends.

Other companies who operate share buybacks (I seem to have quite a few in my HYP at present) seem to allocate a kitty for this function and keep it separate from any dividend kitty. Thus any guidance offered by DL and others is not muddled by BKG's single kitty system.

[Breelander]

Berkeley and Persimmon both embarked on an almost identical 'return of capital' plan, with planned payments set out from 2012 up to 2021.

Compare and contrast - while PSN have consistently increased their capital return plan over and above the original planned payments, BKG have cut back their original plan in favour of share buybacks.

I know which I'd prefer to (and do) hold.

Originally we committed to return £1.9bn (£6.20 per share) of surplus capital to shareholders between 2012-2021.

We increased this commitment by c. £860m (£2.80 per share) on 23 February 2016, by a further c. £77m (25p per share) on 24 February 2017 and by a further c. £1,170m (or £3.75 per share) on 26 February 2018. As a result the total value of the Capital Return Plan has been increased by 110% since its inception...

https://www.persimmonhomes.com/corporat ... eturn-plan

[ian56]

Following on from a series of share buy-backs over the past couple of weeks, the BKG final dividend has reduced from 80p/share to 65p/share. With no buybacks during the current half year, the final dividend would have been 103p/share.

Assuming no further purchases, this will make the full-year dividend 121p, for a 3.3% yield. The pre-buyback full year dividend would have been 205p, for an estimated yield of 5.6%.

The latest purchase is here:-

https://www.investegate.co.uk/berkeley- ... ds%20Alert

The final payout will be announced on 16th August, the shares go ex-dividend on 23rd August, and the payment is scheduled to take place on 14th September.

https://www.investegate.co.uk/berkeley- ... 00129215X/

Jared Cranney has been even busier than Gemma Parsons and has managed to get the final dividend down to 33.30p. I suppose it was inevitable after the price dropped back sharply from the £40.00 plus levels it was trading at prior to the final results in June that the repurchasing would re-start. I am continuing to hold as I was lucky enough to buy at around the £24 level late in 2016 and am not currently drawing the dividends. I could understand why those who might be taking the income would be less sanguine.

Ian

[Bouleversee]

So what has been achieved by all these buy backs?

[nk104]

The dividend for this half-year is less than 1 per cent, a repetition next time means less than 2 per cent for the year. If this is how things are going to be then BKG isn't really a high-yielding share any more. It's then a question of whether to sell or hold on.

[Bouleversee]

Or even a growth share. Consensus of brokers has edged into "sell" and there seem to have been quite a lot of sales today. I wonder if it's being heavily shorted. No time to check.

[Breelander]

Or even a growth share. Consensus of brokers has edged into "sell" and there seem to have been quite a lot of sales today. I wonder if it's being heavily shorted. No time to check.

I struggle to see why BKG have had to do a 'U-turn' on their capital return plan while PSN's almost identical one has increased its payments, as I said earlier. Perimmon's interims are due out on the 21st, it will make interesting reading to compare the two...

[Davidsb]

What I find most irritating is that DL insist on showing the forecast dividends for the next two years as 200+ pence per share - despite the latest full-year payout being 89p per share, or £120m in total. Just a shame that almost £160m was spent on share buy-backs instead of on dividends......

I also hold Bellway (BWY) and Crest Nicholson (CRST), and Barratt Developments came up on my latest screen. So I too am querying the benefit of holding on to BKG - I suspect that tinkering them away would be good for my blood pressure, if nothing else.....