Remove ads

Introducing the LemonFools Personal Finance Calculators

SLA share purchases

Practical discussions about equity High-Yield Portfolios (HYP) for income
Forum rules
Tight HYP discussions only please - OT please discuss in strategies
EssDeeAitch
Lemon Slice
Posts: 295
Joined: August 31st, 2018, 9:08 pm
Has thanked: 64 times
Been thanked: 66 times

Re: SLA share purchases

#200816

Postby EssDeeAitch » February 12th, 2019, 12:26 pm

GoSeigen wrote:
EssDeeAitch wrote:Not sure if this is the correct forum for this question however.....

I see that Standard Life Aberdeen - SLA has bought 1,058,156 of its shares from the market and will then cancel these shares. What does this achieve? Can anyone help?


Well, there are some disgraceful comments being made on this theme but I won't name names.

The simple fact is the developed economies are awash with excess capital and have no profitable use for it. They are therefore returning it to their shareholders, effectively reducing the capital of the company. This is why we invest -- to get a return on our capital. There will be eternal arguments as to whether it should be done as a dividend or share purchase but in the long run it makes close to sod-all difference.

SLA is returning cash to shareholders. It's as simple as that. I like it and I like that dividend investors don't like it and am buying.


GS


I am not disputing what you say as I just don't have the knowledge but I want to make one comment and ask one question: I am a shareholder and no capital has been returned to me and what benefit accrues to me if the capital of the company is reduced? I just don't get it.

BBLSP1
Lemon Pip
Posts: 87
Joined: November 5th, 2016, 8:06 am
Has thanked: 49 times
Been thanked: 42 times

Re: SLA share purchases

#200821

Postby BBLSP1 » February 12th, 2019, 12:42 pm

EssDeeAitch wrote:I am not disputing what you say as I just don't have the knowledge but I want to make one comment and ask one question: I am a shareholder and no capital has been returned to me and what benefit accrues to me if the capital of the company is reduced? I just don't get it.


I'm with you EDA - As a shareholder what am I getting from all this? As a (part) owner of the company I expect a share of the profits in the form of dividends which I can then use to buy food and pay utility bills. How does this other approach help me? Appreciate if GS could expand on his post.

GoSeigen
Lemon Quarter
Posts: 1319
Joined: November 8th, 2016, 11:14 pm
Has thanked: 309 times
Been thanked: 313 times

Re: SLA share purchases

#200822

Postby GoSeigen » February 12th, 2019, 12:51 pm

EssDeeAitch wrote:
GoSeigen wrote:The simple fact is the developed economies are awash with excess capital and have no profitable use for it. They are therefore returning it to their shareholders, effectively reducing the capital of the company. This is why we invest -- to get a return on our capital. There will be eternal arguments as to whether it should be done as a dividend or share purchase but in the long run it makes close to sod-all difference.

SLA is returning cash to shareholders. It's as simple as that. I like it and I like that dividend investors don't like it and am buying.


GS


I am not disputing what you say as I just don't have the knowledge but I want to make one comment and ask one question: I am a shareholder and no capital has been returned to me and what benefit accrues to me if the capital of the company is reduced? I just don't get it.


Shareholders are a class, not individuals.

i.e. to return cash to shareholders does not require every single shareholder to receive a metal coin or bank note. Some give up their shares to receive cash, the others receive a proportionally higher share of the ownership of the company.

GS

richfool
Lemon Slice
Posts: 838
Joined: November 19th, 2016, 2:02 pm
Has thanked: 174 times
Been thanked: 176 times

Re: SLA share purchases

#200823

Postby richfool » February 12th, 2019, 12:57 pm

Surely, from a business perspective (that of the company), it makes sense to be buying back shares when the stock price has fallen so much, and as said it then reduces the amount they need to pay out in dividends at the next dividend payment date? Isn't that helpful to the business that we are investing in, and perhaps even helps them to maintain the dividend that we are receiving?

No one passed any comment on my comment/perspective above, but isn't it better to have a "healthier" company and by reducing the number of shares in issue, surely it's increasing the prospects of maintaining future dividends.

EssDeeAitch
Lemon Slice
Posts: 295
Joined: August 31st, 2018, 9:08 pm
Has thanked: 64 times
Been thanked: 66 times

Re: SLA share purchases

#200824

Postby EssDeeAitch » February 12th, 2019, 12:58 pm

GoSeigen wrote:
EssDeeAitch wrote:
GoSeigen wrote:The simple fact is the developed economies are awash with excess capital and have no profitable use for it. They are therefore returning it to their shareholders, effectively reducing the capital of the company. This is why we invest -- to get a return on our capital. There will be eternal arguments as to whether it should be done as a dividend or share purchase but in the long run it makes close to sod-all difference.

SLA is returning cash to shareholders. It's as simple as that. I like it and I like that dividend investors don't like it and am buying.


GS


I am not disputing what you say as I just don't have the knowledge but I want to make one comment and ask one question: I am a shareholder and no capital has been returned to me and what benefit accrues to me if the capital of the company is reduced? I just don't get it.


Shareholders are a class, not individuals.

i.e. to return cash to shareholders does not require every single shareholder to receive a metal coin or bank note. Some give up their shares to receive cash, the others receive a proportionally higher share of the ownership of the company.

GS


Got it, thanks

Alaric
Lemon Quarter
Posts: 2416
Joined: November 5th, 2016, 9:05 am
Has thanked: 4 times
Been thanked: 479 times

Re: SLA share purchases

#200828

Postby Alaric » February 12th, 2019, 1:24 pm

pyad wrote: A return which none of us here have ever seen.


Everyone who measures their investment success by market value and total return will have seen their net wealth increased if the effect of the share buyback is to increase the market price of SLA shares.

GoSeigen
Lemon Quarter
Posts: 1319
Joined: November 8th, 2016, 11:14 pm
Has thanked: 309 times
Been thanked: 313 times

Re: SLA share purchases

#200833

Postby GoSeigen » February 12th, 2019, 1:53 pm

BBLSP1 wrote:
I'm with you EDA - As a shareholder what am I getting from all this? As a (part) owner of the company I expect a share of the profits in the form of dividends which I can then use to buy food and pay utility bills. How does this other approach help me? Appreciate if GS could expand on his post.


Okay, think about it this way. We have a hypothetical company whose shares are priced to return 5% in perpetuity. As investors we don't know in advance what will happen but for this exercise let's wind forward and discover that the business continued in a steady state for ever, always generating profit to give a perpetual 5% return. Hopefully that sets the scene.


Now let's say the company has two contrasting options:
-It can return all the 5% to shareholders equally in the form of a dividend. So investors get 5% cash every year on their initial investment.
-It can return the 5% by buying 5% of the shares from people who want to sell and cancelling the shares.


We'll assume that in both cases all the distributed funds are spent and not reinvested in the company and wind forward 20 years. All else being equal:

1. in the first case the company has paid out 100% of its initial capitalisation in dividends.
2. in the second the company has sold its shares to the value of 100% of the initial valuation. However, clearly not all the shares have been bought back. What has happened? Every time a buyback occurs, the shares are revalued to maintain the yield at 5%. The company distributes the same amount of cash each year but purchases progressively fewer shares, because the price of the shares is rising. If you do the calculations (use a spreadsheet) you find the number of shares outstanding has fallen by two thirds, and the share price has risen by 2.65 times those who remain holders a profit of 165% at current market value. [The perpetual return on current market value of the shares is still 4% of course.]


As a shareholder your decision is: do I want 100% in dividends over 20 years and the chance to reinvest or spend my dividends, or do I want a 165% return over 20 years with no access to cash for either spending or reinvestment? [EDIT: Of course from the perspective of the company the cash flows are identical.]



HTH

GS

BBLSP1
Lemon Pip
Posts: 87
Joined: November 5th, 2016, 8:06 am
Has thanked: 49 times
Been thanked: 42 times

Re: SLA share purchases

#200839

Postby BBLSP1 » February 12th, 2019, 2:20 pm

GoSeigen wrote:Okay, think about it this way. We have a hypothetical company whose shares are priced to return 5% in perpetuity. As investors we don't know in advance what will happen but for this exercise let's wind forward and discover that the business continued in a steady state for ever, always generating profit to give a perpetual 5% return. Hopefully that sets the scene.

......


As a shareholder your decision is: do I want 100% in dividends over 20 years and the chance to reinvest or spend my dividends, or do I want a 165% return over 20 years with no access to cash for either spending or reinvestment? [EDIT: Of course from the perspective of the company the cash flows are identical.]GS


Thanks for the detailed response.

It is all seems a bit theoretical to me - dividend cash once in the pocket is certain, however, share prices never seem to respond to these buy backs in the way they should!

tjh290633
Lemon Quarter
Posts: 2802
Joined: November 4th, 2016, 11:20 am
Has thanked: 183 times
Been thanked: 892 times

Re: SLA share purchases

#200842

Postby tjh290633 » February 12th, 2019, 2:29 pm

In my view the tender approach is better. If you don't wish to participate, then the number of shares that you own remains the same, but your share of the company increases. If you wish to tender your shares, then you will get the cash, to do with as you wish. You will have fewer shares, but that is your choice.

TJH

pyad
Lemon Slice
Posts: 250
Joined: November 4th, 2016, 10:17 am
Been thanked: 460 times

Re: SLA share purchases

#200850

Postby pyad » February 12th, 2019, 3:39 pm

Alaric wrote:
pyad wrote: A return which none of us here have ever seen.


Everyone who measures their investment success by market value and total return will have seen their net wealth increased if the effect of the share buyback is to increase the market price of SLA shares.


That's a monster "if" upon which one cannot remotely depend.

You can never know over time if buybacks increase the price and you don't know what would have happened to the price in the absence of the buybacks. Those who think buybacks are in some way price-beneficial fool themselves. I don't think such an effect exists. Over time share prices depend ultimately on profitability.

I repeat, nobody here has seen the cash from a buyback. That privilege is reserved for the cosy institutional mates and investment bankers of the payer. It's undemocratic, corrupt and in no way is it a "return to shareholders" in the universal sense which that phrase implies. Don't fall for it, you will never see a penny of that "return."

What is really shocking is that some small shareholders, against whose interests buybacks act, swallow this garbage. And it's doubly shocking when HYPers believe it too. That's your potential dividend they are passing to some pinstriped institutional git.

GoSeigen
Lemon Quarter
Posts: 1319
Joined: November 8th, 2016, 11:14 pm
Has thanked: 309 times
Been thanked: 313 times

Re: SLA share purchases

#200867

Postby GoSeigen » February 12th, 2019, 4:54 pm

BBLSP1 wrote:It is all seems a bit theoretical to me - dividend cash once in the pocket is certain, however, share prices never seem to respond to these buy backs in the way they should!


It's all very clear and practical actually:

-In either case -- dividends or buybacks -- cash leaves the company's account and ends up in the pockets of shareholders. Nothing theoretical about that.
-With dividends a little cash hits each shareholder's account and they all retain the same proportion of the company as before.
-With buybacks a large payment is accepted by the sellers, who lose their entire interest in the company. No payment goes to holders, who instead own a slightly larger proportion of the company.


I don't know what people expect share prices to do -- send a little text saying "I went up 0.4% this week because of buybacks"? When do share prices EVER respond "the way they should"?!

If you want to track progress of buybacks, then produce a chart of Share Inflation in a spreadsheet. In one column note the number of shares outstanding from month to month of a company which is not purchasing its shares. In the next column note the number of shares of a similar company in the same sector which IS buying back. Each year calculate the change in the number of shares for each company (the share inflation). This will show the relative share-printing rate of the two companies. The one which is printing fewer shares (or is cancelling them) is preserving more of the buying power of the shares you hold.


GS

scrumpyjack
Lemon Slice
Posts: 353
Joined: November 4th, 2016, 10:15 am
Has thanked: 13 times
Been thanked: 91 times

Re: SLA share purchases

#200872

Postby scrumpyjack » February 12th, 2019, 4:59 pm

One problem with share buybacks, and this is a subjective impression I do admit, is that companies often do them at the wrong time and at a price which, a couple of years on, looks very stupid. Management do this when the company has had a period of good trading and has built up cash. The share price is then at a relative high. They buy back shares, the cycle turns, and it all looks very silly with hindsight.

OhNoNotimAgain
Lemon Slice
Posts: 363
Joined: November 4th, 2016, 11:51 am
Has thanked: 38 times
Been thanked: 50 times

Re: SLA share purchases

#200873

Postby OhNoNotimAgain » February 12th, 2019, 5:03 pm

pyad wrote:
Alaric wrote:
pyad wrote: A return which none of us here have ever seen.


Everyone who measures their investment success by market value and total return will have seen their net wealth increased if the effect of the share buyback is to increase the market price of SLA shares.


That's a monster "if" upon which one cannot remotely depend.

You can never know over time if buybacks increase the price and you don't know what would have happened to the price in the absence of the buybacks. Those who think buybacks are in some way price-beneficial fool themselves. I don't think such an effect exists. Over time share prices depend ultimately on profitability.

I repeat, nobody here has seen the cash from a buyback. That privilege is reserved for the cosy institutional mates and investment bankers of the payer. It's undemocratic, corrupt and in no way is it a "return to shareholders" in the universal sense which that phrase implies. Don't fall for it, you will never see a penny of that "return."

What is really shocking is that some small shareholders, against whose interests buybacks act, swallow this garbage. And it's doubly shocking when HYPers believe it too. That's your potential dividend they are passing to some pinstriped institutional git.


Spot on.

Share buy-backs just soak up some of the free equity that executives award themselves as part of their bonus.

In many cases the bonus calculation is based on Total Return of the shares and some distorted measure of earnings per share. And guess what? Both of these are helped by:

Yes:- Share Buy Backs

GoSeigen
Lemon Quarter
Posts: 1319
Joined: November 8th, 2016, 11:14 pm
Has thanked: 309 times
Been thanked: 313 times

Re: SLA share purchases

#200876

Postby GoSeigen » February 12th, 2019, 5:17 pm

pyad wrote:
Alaric wrote:
pyad wrote: A return which none of us here have ever seen.


Everyone who measures their investment success by market value and total return will have seen their net wealth increased if the effect of the share buyback is to increase the market price of SLA shares.


That's a monster "if" upon which one cannot remotely depend.
.


It has nothing to do with share price, or rather that is the wrong focus. It is about the amount of dividend paid to each share. THAT is why the share price is going up: because the dividend per share is growing -- even though the performance of the company is not changing. The dividend per share grows because the number of shares falls.

Holders therefore receive higher future dividends from each share than they would have absent the buybacks. I'm shocked frankly that pyad seemingly can't get his head around such an elementary concept.



Widget Ltd has A shares and B shares with identical, pari passu rights apart from their dividend policy. There are 50 A shares in issue which receive an aggregate £100 per year of dividends. There are 100 B shares in issue which also receive an aggregate £100 per year of dividends. Naturally the A shares cost twice as much as the B shares.


pyad would have us to believe the B shares are a better buy than the A shares for no other reason than that they have had lower capital gains. IMO there is absolutely no difference between the two.



GS

GoSeigen
Lemon Quarter
Posts: 1319
Joined: November 8th, 2016, 11:14 pm
Has thanked: 309 times
Been thanked: 313 times

Re: SLA share purchases

#200917

Postby GoSeigen » February 12th, 2019, 7:13 pm

scrumpyjack wrote:One problem with share buybacks, and this is a subjective impression I do admit, is that companies often do them at the wrong time and at a price which, a couple of years on, looks very stupid. Management do this when the company has had a period of good trading and has built up cash. The share price is then at a relative high. They buy back shares, the cycle turns, and it all looks very silly with hindsight.



This is true, but it's an affliction that affects all sorts of people, not just company bosses. The skill of the investor is to learn to avoid these mistakes and the companies making them.

However this is the HYP board, so actually the time to buy is now and the share price doesn't matter...

;-)

GS

Arborbridge
Lemon Quarter
Posts: 2555
Joined: November 4th, 2016, 9:33 am
Has thanked: 422 times
Been thanked: 714 times

Re: SLA share purchases

#200932

Postby Arborbridge » February 12th, 2019, 8:00 pm

Alaric wrote:
pyad wrote: A return which none of us here have ever seen.


Everyone who measures their investment success by market value and total return will have seen their net wealth increased if the effect of the share buyback is to increase the market price of SLA shares.


If.....

Go look at the share price. If there was a chance of the buyback being in shareholders' interests, it is not being shown in the share price which continues to ebb. The market is not convinced. All you could argue is that without news of the buyback, the share price would deteriorate faster than it has - but that is unprovable.

Arb.

idpickering
Lemon Quarter
Posts: 3720
Joined: November 4th, 2016, 5:04 pm
Has thanked: 529 times
Been thanked: 1065 times

Re: SLA share purchases

#200982

Postby idpickering » February 13th, 2019, 6:41 am

SLA are one that I really should top up maybe, but for some reason I'm reluctant to do so? It's the old, if the yield looks to good to be true etc.....
Ian.

kempiejon
Lemon Slice
Posts: 903
Joined: November 5th, 2016, 10:30 am
Has thanked: 5 times
Been thanked: 178 times

Re: SLA share purchases

#200994

Postby kempiejon » February 13th, 2019, 7:52 am

idpickering wrote:SLA are one that I really should top up maybe, but for some reason I'm reluctant to do so? It's the old, if the yield looks to good to be true etc.....
Ian.


Ian your reluctance should be if your safety factors, sustainability of dividend and portfolio diversification metrics don't stack up etc... Not just because it's too good to be true, sometimes it can good. If memory serves didn't you top up Shell on 8% plus? I did.
Yield is a factor of dividend amount and share price, the share price varies with market sentiment and looks like it's not been this low for years. HYPing often looks for unloved shares that's what drives the yield higher. SLA offers 8% plus, that's high, they are a big cap in the larger index, dividend is covered 1.4 times according to webfg but forecast to fall by the same source as is next years dividend. SLA is the merged version of Aberdeen and Standard Life so in it's current carnation doesn't have much history. I hold as I chose Aberdeen for my HYP. If I was picking again and using webfg for screening the forecast reduced dividend and slim cover and lack of "proper" history in this current form would probably stay my buying finger. So I agreed with your reluctance to top up but not because the yield is too high.

idpickering
Lemon Quarter
Posts: 3720
Joined: November 4th, 2016, 5:04 pm
Has thanked: 529 times
Been thanked: 1065 times

Re: SLA share purchases

#200995

Postby idpickering » February 13th, 2019, 7:57 am

kempiejon wrote:
idpickering wrote:SLA are one that I really should top up maybe, but for some reason I'm reluctant to do so? It's the old, if the yield looks to good to be true etc.....
Ian.


Ian your reluctance should be if your safety factors, sustainability of dividend and portfolio diversification metrics don't stack up etc... Not just because it's too good to be true, sometimes it can good. If memory serves didn't you top up Shell on 8% plus? I did.
Yield is a factor of dividend amount and share price, the share price varies with market sentiment and looks like it's not been this low for years. HYPing often looks for unloved shares that's what drives the yield higher. SLA offers 8% plus, that's high, they are a big cap in the larger index, dividend is covered 1.4 times according to webfg but forecast to fall by the same source as is next years dividend. SLA is the merged version of Aberdeen and Standard Life so in it's current carnation doesn't have much history. I hold as I chose Aberdeen for my HYP. If I was picking again and using webfg for screening the forecast reduced dividend and slim cover and lack of "proper" history in this current form would probably stay my buying finger. So I agreed with your reluctance to top up but not because the yield is too high.


Hi kempiejon, thanks for your input. In fact you articulated my reasoning towards the end of your post better than I did. As for Shell, yes I did buy more then. In fact I doubled my holding. So in short, your reasoning is sound regarding SLA. Knowing me, I'll probably just top up and be done with SLA for a while.

Ian.

Alaric
Lemon Quarter
Posts: 2416
Joined: November 5th, 2016, 9:05 am
Has thanked: 4 times
Been thanked: 479 times

Re: SLA share purchases

#200996

Postby Alaric » February 13th, 2019, 7:58 am

kempiejon wrote: SLA is the merged version of Aberdeen and Standard Life so in it's current carnation doesn't have much history.


It's the merger of Aberdeen and the investment management side of Standard Life. The life insurance side of Standard was sold off to Phoenix. It's the proceeds of that sale and the regulatory capital released as a consequence that's driving the queries as to what they should be doing with it.


Return to “High Yield Portfolios (HYP) - Practical”

Who is online

Users browsing this forum: ekipazh and 2 guests