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  1. #31
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    You know SNOOPY, you have a great way of wording AROUND my answers where I make no relevance to them. Specifically with the emphasis on dividends. Shareholders that choose dividends should not choose companies that have growth prospects. There are plenty of such companies like utilities (have I not mentioned this before?).

    As for the individual owning real estate vs shares - we've beaten the issue long enough. You can infer from different angles but does not change the fact that in NZ, real estate ranks supreme as the main investment. It's been pointed out many times throughout the decades, even when Michael Cullen has been pushing towards getting NZ people away from houses and into the NZ share market. If a person has $1M to invest. He's not going to be crazy to put that in Kiwi Saver where the corporations can dish out dividends. What the real estate owner wants is that tax free capital gain. Oh and since there's this focus on dividends, you can forget about that tax free capital gain on corporate shares ; no one questions why.

  2. #32
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    Quote Originally Posted by SBQ View Post
    The questions I asked regarded around FIF / FDR rules and more specifically, if a wealthy person living in NZ was to inherit $10M from a family member living in N. America, for which the $ is wholly invested in US equities, what would the NZ resident best do with that $ ?
    That question isn't straightforward, as it depends what that wealthy person's objective is. Do they wish to:

    1/ Preserve capital?
    2/ Generate an optimised income in NZ dollar terms?
    3/ Diversify their investment base by holding significant overseas assets that are difficult to invest in locally?

    The issue here is that if the portfolio is kept unchanged, then the NZ based investor will be subject to FIF rules. That means tax will be paid at the marginal rate on the opening value of the share portfolio every year. With a $US10m on the first day of the financial year, and our wealthy NZer paying tax at 30% the tax bill will be:

    $US10m x 0.05 x 0.30 = $US150,000

    Because US companies tend to have a dividend lower yield, you may not receive sufficient income from that portfolio to cover your NZ tax debt. That could be an issue because it means to continue to 'hold' this portfolio, you will have to subsidize the portfolio holding cost out of your NZ income, and that might not be ideal.

    SNOOPY
    Last edited by Snoopy; Yesterday at 09:32 AM.
    To be free or not to be free. That is the cash-flow question....

  3. #33
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    Quote Originally Posted by SBQ View Post
    You know SNOOPY, you have a great way of wording AROUND my answers where I make no relevance to them. Specifically with the emphasis on dividends. Shareholders that choose dividends should not choose companies that have growth prospects. There are plenty of such companies like utilities (have I not mentioned this before?).
    SBQ, the issue of retaining earnings (i.e. not paying out dividends) as a reputable strategy to fund future growth is not a point I wish to debate with you, because I agree with you, in terms of the general principle. You highlight the example of Berkshire Hathaway who have never paid a dividend as the ultimate example of showing how this strategy works. However, I feel your highlighting of such a dividend policy as the key to multi-year growth of any company is a gross simplification of Buffett's recipe for investment success.

    Buffett IIRC is not averse to a company he holds shares in buying back their own shares. This is because if shares are bought back and cancelled, this means the same profits are distributed over less shares increasing earnings per share. But a company can do this by increasing debt: borrowing money to buy back their own shares. So such a strategy can increase company debt. Although Buffett is generally debt averse, it doesn't mean he doesn't think increasing company debt is a good thing under some circumstances.

    Going back to your 'Warehouse' example, you suggest that WHS should have built up their red/blue shed footprint all over the country first, and only then start to pay dividends. This to me smacks of retrospective analysis, made with knowledge of what has worked with historical hindsight. I can remember in the pre 'red shed' days when my local Warehouse was little more than one shop in a small suburban shopping centre selling short run imported furniture and soft furnishings. I suspect at that time, WHS management did not know where they would end up ten or more years down the track. I suspect that the demise of the rival DEKA chain helped them in ways they could not conceive in the moment.

    The point here is that it is not clear when a company's growth phase stops and it is also not clear that any expansion should be 'flat out', 'measured' or 'try and see'. There could be times on the growth path when not all retained earnings are required. So why not pay out the new capital you don't need as a dividend? Likewise an opportunity may come up which requires more capital than retained earnings can provide. In this circumstance it could be quite the right thing to have a 'cash issue', which dilutes existing shareholdings. Your mantra of keeping all retained earnings and only using those to expand the business is not realistic for managing real world growth, in my view.

    SNOOPY
    Last edited by Snoopy; Yesterday at 10:07 AM.
    To be free or not to be free. That is the cash-flow question....

  4. #34
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    I really could not give a hoot whether a company pays a dividend or not, I am interested in the total return I can reasonably expect from my investment over time.
    Thus I have a financial interest in high growth shares that pay no dividend, low growth shares with a high dividend payout and those who sit between these extremes.
    om mani peme hum

  5. #35
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    Quote Originally Posted by Snow Leopard View Post
    I really could not give a hoot whether a company pays a dividend or not, I am interested in the total return I can reasonably expect from my investment over time.
    Thus I have a financial interest in high growth shares that pay no dividend, low growth shares with a high dividend payout and those who sit between these extremes.
    The reason why SNOOPY and myself are debating so hard about dividends is something I feel in NZ, investors don't understand the logic (or perhaps have different priorities). There's no gross over simplification on my part and it all is rooted in minimizing the tax load to the individual investor whether you prefer a company with high growth capital gains with no divs or a low growth share with high dividends ; either one has different tax implications. I'm disgusted of the NZ investment approach calling out for dividends REGARDLESS of type of listed company, or approach whether the company is in growth stage or not. It's a pretty much universal expectation share holders want a dividend without regard. Has nothing to do if the board of directors feel they are in a growth stage or not because quite frankly, using the term "dividend" as a way to persuade investors to buy their shares is a very poor strategy without understanding the impact it does to the 'book value' of the company, and not to mention the impact on income tax.

    SNOOPY: This is how we were taught in Finance (BCom in N. America). Those that seek dividend payment from a hedge or managed fund ; the typical make up such listed companies in the portfolio would be likes of your utilities, long term matured companies with no growth expansion, etc. Definitely NOT companies like The Warehouse Group that have been in the business for decades that have chosen to keep paying dividends because of some silly policy they made up to keep investor interest. I was at an investor presentation some months ago about Ryman retirement homes. Again I was confused on the high dividend payment while at the same time, borrowing funds and floating more share to do more 'acquisitions' of properties all over NZ and Australia (which is clearly an expansion growth strategy). Their emphasis was again on stupid dividends while I would of expected a 10 or 20 year chart of their stock price instead.

    When i'm investing $ into any company, I want a return that GROWS my investment and not a return ON my investment. Know the distinction? I don't want dividends in my hand that takes out the control of my investment because i'm stuck with that income. I much rather choose when I want the income by selling the portion of the shares when needed (and thus, realising the tax free capital gain).

  6. #36
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    The thing is, not every investor is a big investor with a huge bucket of funds to invest. Some of us are insignificant investors on the grand scale of things. We are simply trying to make the best of what money we do have, rather than watch it depreciate in the bank. People like me, want and need dividends because DRIP is the number one way we can build up our shareholding. Of course down the track we hope to make a capital gain should we ever decide to sell, but that’s not our focus. I get that for people like you, that seems ridiculous, but it works for me. I’m sure there are many other very small investors out there who it also works for.

    Having said that, even for big investors there are proven advantages of dividends, as others here are pointing out, but you seem hell bent on trying to prove them wrong. Why does it bother you? If you don’t like dividends don’t invest in companies that pay them. It’s not rocket science.

    Quote Originally Posted by SBQ View Post
    SNIP
    When i'm investing $ into any company, I want a return that GROWS my investment and not a return ON my investment. Know the distinction? I don't want dividends in my hand that takes out the control of my investment because i'm stuck with that income. I much rather choose when I want the income by selling the portion of the shares when needed (and thus, realising the tax free capital gain).

  7. #37
    Trying to get outta here
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    Quote Originally Posted by justakiwi View Post
    The thing is, not every investor is a big investor with a huge bucket of funds to invest. Some of us are insignificant investors on the grand scale of things. We are simply trying to make the best of what money we do have, rather than watch it depreciate in the bank. People like me, want and need dividends because DRIP is the number one way we can build up our shareholding. Of course down the track we hope to make a capital gain should we ever decide to sell, but that’s not our focus. I get that for people like you, that seems ridiculous, but it works for me. I’m sure there are many other very small investors out there who it also works for.

    Having said that, even for big investors there are proven advantages of dividends, as others here are pointing out, but you seem hell bent on trying to prove them wrong. Why does it bother you? If you don’t like dividends don’t invest in companies that pay them. It’s not rocket science.
    I love dividends, there is nothing like a nice fully imputed divvy hitting your bank account, in fact my only true long term holding is HLG which also happens to be one of the best divvy stocks on the NZX.

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