Unilever - SIMPLIFICATION OF UNILEVER'S CORPORATE STRUCTURE

[Wizard]

To IDP: wot no pickering? You rather surprised me by your precipitatness.


Arb.

Not on this occasion no Arb. 1. It takes away all the doubt. 2. TATE yield is higher. I might be wrong, but I'm happier out of all the kerfuffle regarding Unilever.

Ian.

I'm still in the "wait and see" camp - we'll have to disagree on this one. Tate's yield maybe a bit higher, but over the past ten years ULVRs' dividend growth rate has outstripped that of Tate by double. (x1.46 increase for Tate to 3.x for ULVR). I haven't worked through the numbers, but I doubt the problems concerning the tax position would make up the difference.
I'm dorising it for now.

My bold.

I suggest you run the numbers, because based on the numbers I have just run the tax impact is material and your gut feel is very much wrong.

Projecting forward the growth rate for last 10 years over the next 10 years, using the dividend for 2018* for each as a base and the share price for each (all on Dividenddata), then applying 15% witholding tax for Unilever from 2020 onwards I get the following numbers.

For each £100 invested you can buy 2.3 Unilever shares and 15.4 Tate shares. Calculated as per above I get cumulative dividends of £50.40 between 2019 and 2028 for Tate, for Unilever over the same period it is £51.96 if no tax comes to pass, but only £44.75 if 15% tax is appled from 2020 onwards.

Terry.

* For Unilever I have assumed the second and third dividend are in line with the first and second, as in previous years to create the basis dividend to roll forward.

[Gengulphus]

... Tate's yield maybe a bit higher, but over the past ten years ULVRs' dividend growth rate has outstripped that of Tate by double. (x1.46 increase for Tate to 3.x for ULVR). ...

Not disputing your point there - Unilever's dividend growth rate has been a lot higher than Tate & Lyle's - but where on earth did you get those numbers?

Tate & Lyle's dividend for the year to March 2008 was 6.5p+16.1p = 22.6p, and for the year to March 2018 it was 8.4p+20.3p = 28.7p. That's a x1.27 increase, which annualises to a dividend growth rate of 2.4%. (Source: dividenddata, confirmed by Tate & Lyle's own page)

Unilever's dividend for the year to December 2007 was 17.00p+34.11p = 51.11p, and for the year to December 2017 it was 30.21p+31.83p+31.99p+31.55p = 125.58p. That's a x2.46 increase, which annualises to a dividend growth rate of 9.4%. Or in euro terms, the corresponding figures are 25c+50c = 75c, 4*35.85c = 143.4c, x1.91 and 6.7%. (Source: Unilever's own sterling and euro pages. dividenddata is rather unhelpful for this because the currency it uses changes in 2009, but even if one fails to notice that change, the increase from 51.11 to 143.4 falls some way short of x3.)

Anyway, one gets two very noticeably different figures for Unilever's dividend growth rate depending on whether one looks at its dividends in sterling or euros, but both 6.7% and 9.4% are well over double Tate & Lyle's 2.4%, and are well above inflation while Tate & Lyle's is only roughly inflation-equalling. So I completely agree with you that "ULVRs' dividend growth rate has outstripped that of Tate by double" - but I am rather puzzled about where your figures come from: both increases you quote are considerably too high...

And to return to this thread's subject, I think the dividend growth figures confirm my initial diagnosis of this simplification proposal: Unilever ain't broke, so don't try to fix it!

Gengulphus

[Wizard]

...Unilever's dividend for the year to December 2007 was 17.00p+34.11p = 51.11p, and for the year to December 2017 it was 30.21p+31.83p+31.99p+31.55p = 125.58p. That's a x2.46 increase, which annualises to a dividend growth rate of 9.4%. Or in euro terms, the corresponding figures are 25c+50c = 75c, 4*35.85c = 143.4c, x1.91 and 6.7%...

In the numbers I quoted above I used the Dividenddata.com figure for 10 year growth in Unilever's dividend of 6.44%, substituting the 6.7% figure of course increases the total for Unilever, but does not change the overall outcome. The Unilever ex tax number becomes £52.73 per £100 invested and the figure assuming withholding tax is not abolished from 2020 becomes £45.40 per £100 invested. I do not think it prudent to conflate exchange rate predictions with this analysis so do not think the 9.4% is appropriate to use.

So my conclusion remains, contrary to Arb's suggestion, the withholding tax question is not immaterial.

Terry.

[scrumpyjack]

On the other hand if 1% of the PLC is going to be confiscated each year by a Corbyn government, perhaps that changes the equation?

Moderator Message:
Chaps, let's not even think of going there... -- MDW1954

[Gengulphus]

On the other hand if 1% of the PLC is going to be confiscated each year by a Corbyn government, perhaps that changes the equation?

Yes, but that's a vastly bigger issue than Unilever - if it happens, it will affect the entirety of any HYP that conforms to this board's guidance, not just a small fraction of it, and indeed the entirety of a lot of other UK-based share portfolios as well. So I'd suggest that if you want to discuss the issue, you raise it in a new thread rather than letting it be buried well over 100 posts into a thread like this one - it will probably come to the attention of a lot more people that way. Also, such discussion is very likely to go well outside this thread's topic, and all the obvious practical measures that I can think of for dealing with such a problem in a HYP go outside this board's guidance, so I think such a thread would be best started elsewhere - though whether that elsewhere should be High Yield Shares & Strategies, Investment Strategies or Polite Discussions depends on what you want from it...

Note I'm not saying I won't be interested in such a discussion - I am pretty likely to be interested. I just feel that starting it somewhere pretty obscure, that looks very likely to act as a straightjacket on the discussion, is not a good idea!

Gengulphus

Moderator Message:
Folks, consider G's suggestion re: the new thread to be mandatory. We're not going to let this thread drift into that topic! -- MDW1954

[scrumpyjack]

OK I was not trying to start a debate on that 'elephant in the boat' issue but simply to point out that when we are in the very unusual position of beng able to choose whether to hold shares in a British or Dutch company it is uniquely relevant here.

Anyway I've already voted no.

[Arborbridge]

So my conclusion remains, contrary to Arb's suggestion, the withholding tax question is not immaterial.

Terry.

Thanks for looking into the effects, Wizard. We have two particular shares you've chosen, one of which has performed notably better than the other for my HYP in the past ten years. There's a possibility that the better performer (Ulvr) might not perform so well in the future (what's new!) and might be less pleasing than the other (Tate). Well, that's the benefit of running a portfolio - the ups and downs of fortune and misfortune are diluted. Tate can be compared with other companies and found wanting in the same way, but it's all mitigated in the HYP by mutual support.

My conclusion hasn't altered: this proposal in the short term won't of itself make me sell out ULVR. I'll judge the company as time goes on in the usual HYP manner. It could be that one day I'll get frustrated at entering up (already fairly small) dividends four times a years (compare with big dollops from others) , and this annoyance might become greater than the satisfaction of owning a reliable payer. But that I will find out in the fullness of time.

Arb.

[idpickering]

I'll judge the company as time goes on in the usual HYP manner.

Arb.

Very commendable, and Dorisian of you Arb.

Ian.

[Dod101]

It is perfectly possible that the Unilever dividend will not continue to grow at these levels for very much longer. The dividend was hiked in direct response to the Kraft Heinz effect, but even at the more modest levels of increase it was a very satisfactory share to hold for all the reasons cited on this and other threads. No doubt the Dutch Withholding Tax if it were to apply would be a significant disincentive but I would judge that at the time.

Dod

[Wizard]

So my conclusion remains, contrary to Arb's suggestion, the withholding tax question is not immaterial.

Terry.

Thanks for looking into the effects, Wizard. We have two particular shares you've chosen, one of which has performed notably better than the other for my HYP in the past ten years. There's a possibility that the better performer (Ulvr) might not perform so well in the future (what's new!) and might be less pleasing than the other (Tate). Well, that's the benefit of running a portfolio - the ups and downs of fortune and misfortune are diluted. Tate can be compared with other companies and found wanting in the same way, but it's all mitigated in the HYP by mutual support.

My conclusion hasn't altered: this proposal in the short term won't of itself make me sell out ULVR. I'll judge the company as time goes on in the usual HYP manner. It could be that one day I'll get frustrated at entering up (already fairly small) dividends four times a years (compare with big dollops from others) , and this annoyance might become greater than the satisfaction of owning a reliable payer. But that I will find out in the fullness of time.

Arb.

Arb

I do not disagree with anything you have said above, but what you have said above is different to the post I was responding to. In that prior post you made specific reference to Unilever versus Tate and compared dividend growth rates (which have been questioned by Gengulphus). You went on to say that you had not run any numbers, but did not think that the dividend tax in the Netherlands (if not abolished) would make a difference. All I posted to say was that having run some numbers the tax did in fact make a difference. I was not commenting on the overall merit of the two shares, or indeed as your latter post now does widening it up to other shares.

Terry.

[Arborbridge]

I do not disagree with anything you have said above, but what you have said above is different to the post I was responding to. In that prior post you made specific reference to Unilever versus Tate and compared dividend growth rates (which have been questioned by Gengulphus). You went on to say that you had not run any numbers, but did not think that the dividend tax in the Netherlands (if not abolished) would make a difference. All I posted to say was that having run some numbers the tax did in fact make a difference. I was not commenting on the overall merit of the two shares, or indeed as your latter post now does widening it up to other shares.

Terry.

I realise that too! I thanked you for looking into the effect which might occur and putting some numbers on it - I also acknowledge that you found my "gut feeling" was incorrect, and that by implication was included in my thanks for what you did. Gut feelings should always be checked where possible and when a decision is imminent, no one could argue with that. (As an aside, most decisions according to research, are made emotionally rather than analytically. In effect, people go with their guts then try to make the facts fit. We've seen several good examples in the past few years.)

As regards Gengulphus pointing about where I culled the dividend information, it was from dividenddata.co.uk - perhaps I made a mistake? Even if I did, at least I stimulated an interesting post or two

Kitchen duty calls....

[Dod101]

Back to the subject. I see that in The Times and presumably other newspapers, Unilever has this morning taken a full page to tell us of the merits of their Simplification proposals. Sounds as if they fear this will be a close run thing, like Waterloo. Pity The Chairman is not French.

Although it at least gets them some publicity, I do not think it is money well spent. It would be different if they were to tell us why they consider Rotterdam to be a better place than London for incorporation and what cost savings are involved.

Dod

[ayshfm1]

I particularly annoyed with the FT piece where Graeme Pitkethly said the move was good for small investors who interests were not aligned with the bigger one.

He didn't expand on why it was "good" however.

It's also classic mis-direction nornally there will be some things in which the small and the larger investors interests will differ (mostly when companies are pandering to them at our expense), but in this case the proposals are in no-ones best interests (except presumably Graham and the rest of the senior management team)

Still it's looking increasingly likely they did not make sure they had enough votes before embarking on this plan and now are worried (worried enough to splash our money about selling it to us!)

[Arborbridge]

They most certainly are quaking. I too abhore the bland statements that it is good for shareholders without specificying why. As someone with a background in technology, this is anathema to me, however, one sees this tactic down the years so often from manipulators, including politicians. They just thump on with some vacuous line without tangible facts, and which they hope will appeal to the masses, and unfortunately many times in works like a dream. I remember many examples, at least from Reagan onwards.

But in this case, I rather think they have misjudged what "the masses" will fall for!

Arb.

[Gengulphus]

As regards Gengulphus pointing about where I culled the dividend information, it was from dividenddata.co.uk - perhaps I made a mistake? Even if I did, at least I stimulated an interesting post or two

Well, I'm still baffled as to where you got "x1.46 increase for Tate to 3.x for ULVR" from - I too used dividenddata.co.uk and didn't see anything that gave those figures, nor did I manage to think of any plausible way of calculating dividend growth rates that matched them from the figures it gives. And on looking again at its dividend history pages for Unilever and Tate & Lyle, I've noticed that they directly give 10-year dividend growth rates of 6.44% and 2.42% respectively. After allowing for the fact that I only gave one decimal place, the latter matches my 2.4% for Tate & Lyle; the former doesn't quite match my 6.7% for Unilever, but is close enough that I'd guess it's just a matter of a different method of taking the currency change in dividenddata's dividend figures into account. I haven't managed to work out just what that method is, though!

Anyway, my questioning of the "x1.46 increase for Tate to 3.x for ULVR" figures has served its main purposes - warn people against using them, and say how to get correct figures. And looking at it again for this follow-up has told me firstly that dividenddata do supply dividend growth rate figures (something I don't remember noticing before despite them being in plain sight!) and secondly that I should be a bit careful about using dividenddata's dividend growth rate figures when foreign currencies are involved...

Gengulphus

[Gengulphus]

They most certainly are quaking. I too abhore the bland statements that it is good for shareholders without specificying why. ...

What I detest even more are the misleading statements like the one I heard someone from Unilever make in an interview of Radio 4 early yesterday morning (IIRC - I wasn't taking notes!). He basically said that there were lots of reasons why shareholders should favour the move and followed it with a whole list of those reasons - and almost all of them were things like Unilever shares being traded in London, dividends being paid in sterling, Unilever operating in the UK, etc, that aren't reasons to favour the move at all because they are also true if shareholders reject the move! The only one that I spotted that was an actual argument about the move because the move would actually change things in an arguably-beneficial way was essentially the "more flexibility to make strategic changes to the Unilever Group’s portfolio" reason given in the Scheme Document...

In short, spinning the case to be much stronger than it is. And unfortunately, the interviewer didn't challenge the 'reasons' with questions like "Do you mean that it won't be possible to trade the shares in London if shareholders reject the move?"...

Gengulphus

[Alaric]

The only one that I spotted that was an actual argument about the move because the move would actually change things in an arguably-beneficial way was essentially the "more flexibility to make strategic changes to the Unilever Group’s portfolio" reason given in the Scheme Document...

Did they mention "more difficult to be taken over by an American predator"? Isn't that really why they are doing it, to be able to shelter behind Dutch company law which can make a hostile approach more difficult?

[Arborbridge]

What I detest even more are the misleading statements like the one I heard someone from Unilever make in an interview of Radio 4 early yesterday morning (IIRC - I wasn't taking notes!). He basically said that there were lots of reasons why shareholders should favour the move and followed it with a whole list of those reasons - and almost all of them were things like Unilever shares being traded in London, dividends being paid in sterling, Unilever operating in the UK, etc, that aren't reasons to favour the move at all because they are also true if shareholders reject the move!
In short, spinning the case to be much stronger than it is. And unfortunately, the interviewer didn't challenge the 'reasons' with questions like "Do you mean that it won't be possible to trade the shares in London if shareholders reject the move?"...

Gengulphus

I noticed that too, and was quite taken aback that this quite blatant "non-argument" could be seriously put forward for consideration.

Arb.

Moderator Message:
Quote fixed. - Chris

[Arborbridge]

As regards Gengulphus pointing about where I culled the dividend information, it was from dividenddata.co.uk - perhaps I made a mistake? Even if I did, at least I stimulated an interesting post or two

Well, I'm still baffled as to where you got "x1.46 increase for Tate to 3.x for ULVR" from - I too used dividenddata.co.uk and didn't see anything that gave those figures, nor did I manage to think of any plausible way of calculating dividend growth rates that matched them from the figures it gives.
Gengulphus

And frankly, I've no idea either: I can't find any set of numbers which comes out near enough to 1.46 and 3.x times.
Must have been a bad hair day, so I apologise for misreading, or pressing the wrong buttons somewhere.

Arb.

[MDW1954]

I notice that others are voting, or have voted.

My ULVR shares are held in a Halifax account, as I guess will be the case with several others here. All I've had has been a general notification of ULVR's intentions -- nothing to actually vote on.

Is my experience at variance with other ULVR shareholders, especially those with holdings at Halifax?

MDW1954