Pfi

[Snoopy]

Hi Snoopy

Could you please tell me where you get the 0.72 from in your dividend model?

Thanks

Sure. NZ companies pay out dividends, after they have paid their own tax bill to the government. The general principle of dividend imputation is that shareholders do not pay tax on the same profits twice. So shareholders get a credit for the tax paid by the company when they receive their dividend payments. The company tax rate is 28%, which means the IRD gets 28% of the net profit before tax and shareholders are paid the rest: 100%-28%=72%. 72% expressed as a fraction is 0.72.

This means that in order to calculate the 'gross dividend payment' before any tax is taken off it (the 100% referred to above), you have to take the dividend that arrives in your bank account (which is normally 72% of the gross dividend payment for a PIE investment like PFI) and divide that dividend figure that arrives in your bank account by 0.72. This is how you calculate your 'gross dividend payment'. In the real situation you will not have to do this maths, because the company will issue you with a dividend statement where this calculation is done for you.

I choose to look at 'gross dividends' rather than 'net dividends', because it makes for a more straightforward comparison with alternative investments like bank term deposits, where returns quoted are always gross returns. HTH

SNOOPY

[Alekhine]

Great. Thank you. I really enjoy reading your posts.