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  1. #41
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    So, as I said before, that’s fine. You buy into companies that don’t pay dividends and leave the others for us then. Find investments that fit your brief, and if they don’t then don’t buy. I want dividends and DRIP right now, so won’t be buying into companies that don’t provide this. You can’t expect companies to change the way they operate just to suit you.

    Quote Originally Posted by SBQ View Post
    I'm hell bent where the whole investment industry is pretty much hell bent on dividend payment programs without regard of the direction of the company (if they look for expansion or not). It bothers me that there's a bias by NZ investors to expect a dividend payment regardless of the type of company they want to invest in. It's prevalent in the brochures of NZ brokerage firms, etc. I wish there was more to choose for companies that focus more on raising book value but as i've enquired with local investment advisers, they tell me there's not such funds that operate like Berkshire Hathaway. While people like myself that question why seem to get the silly "this is not Kansas attitude" by Snow Leopard's response.

  2. #42
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    Quote Originally Posted by justakiwi View Post
    So, as I said before, that’s fine. You buy into companies that don’t pay dividends and leave the others for us then. Find investments that fit your brief, and if they don’t then don’t buy. I want dividends and DRIP right now, so won’t be buying into companies that don’t provide this. You can’t expect companies to change the way they operate just to suit you.
    So as I said before, I can't buy listed NZ companies with the emphasis of capital gain and instead, find only those with a bias towards paying dividends. If there are any, they're not very good and too risky. From a tax advantage point of view, that makes investing in NZ real estate to be the winner.

  3. #43
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    OK, so why not accept the dividends and make them work for you with DRIP as SNOOPY suggested? Surely you can’t object to obtaining extra shares this way. I know I’m a beginner who knows next to nothing, but I honestly don’t understand why this is such a huge problem for you.

    Quote Originally Posted by SBQ View Post
    So as I said before, I can't buy listed NZ companies with the emphasis of capital gain and instead, find only those with a bias towards paying dividends. If there are any, they're not very good and too risky. From a tax advantage point of view, that makes investing in NZ real estate to be the winner.

  4. #44
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    Quote Originally Posted by SBQ View Post
    As what Snoopy has been replying, he hasn't given up and people would be a fool to believe everything is that concrete. Such as the ICA credit is not always a fully imputed 1 for 1 to the shareholders. IRD's guidebook below is very complex and like not every year will have the same 1 for 1 ratio and factors like years where the company has a loss affects the credit.

    https://www.ird.govt.nz/topics/incom...ation-grouping

    Don't forget, any company that doesn't get the ICA, the default will be RWT on the dividends they receive. NOT every NZX company is free of RWT on the dividends by having ICA nor being fully imputed.
    SBQ, you make a good point here on RWT. The NZ tax system is set up so that we only pay tax on profits once. But if the company has not paid tax on the profits that underlie the dividends they pay shareholders? Then shareholders will be hit with resident withholding tax on that dividend. This compares unfavourably with the alternative scenario of the company withholding their dividend: That would result in shareholders retaining their 'pre tax dividend value' within the company. There are ways around this though:

    1/ If in previous years, a company has not paid out all of their earnings as dividends, then they can have a 'positive imputation credit balance' on the books. This means they can still pay a fully imputed dividend on this years profits that have not been taxed, by utilising imputation credits accumulated in previous years.

    2/ A company can pay tax in advance of it being due, in order to build up the imputation credit account. Effectively that means a company is using profits from future years to pay this years dividend fully imputed. This is a more risky strategy that 1/, because future profits are not guaranteed.

    There is an additional tax effect 'at the margin' when the company tax rate, at 28%, is lower than your own marginal tax rate. If your own marginal tax rate is 30%, then you might argue that any dividend in shareholders hands will incur an extra tax bill of the difference (30%-28% = 2%). And that 2% difference becomes RWT on top of the imputation tax credit you can claim. That 2% is extra tax you would not have paid if the company had simply kept their earnings and not paid it out as a dividend to you. This is just one alternative way of looking at your tax bill though.

    Well above average income earners, those on $150,000+ for instance, still pay much lower rates of tax on the initial tranches of their income. IIRC all taxpayers pay only 15% tax on their first $15,000 worth of income. The rate of tax then gets progressively higher and the highest rate of tax only kicks in once you reach the $70k (? from memory) mark. So even those on $150k have an actual tax bill rate rather lower than their marginal tax rate. This means you can offset that incremental 2% increase on RWT from NZ dividends against tax due on other income that is not taxed at source.

    Another way to get around this 'extra RWT' is to put all your investments in PIE funds. These are taxed at 28% even for the highest earners. However, all PIE entities that I know of have management fees that will wipe out most if not all of your 'tax savings'.

    In summary, resident withholding tax (RWT) is an issue. But it is an issue at the margin for shareholders in companies that generate taxable profits. It doesn't undermine the general principle of imputation credits making the investment treatment of dividends tax neutral.

    SNOOPY
    Last edited by Snoopy; 26-05-2019 at 10:25 AM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  5. #45
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    Quote Originally Posted by justakiwi View Post
    OK, so why not accept the dividends and make them work for you with DRIP as SNOOPY suggested? Surely you can’t object to obtaining extra shares this way. I know I’m a beginner who knows next to nothing, but I honestly don’t understand why this is such a huge problem for you.
    You've missed my point, but that's ok (beginners aren't expected to know). When I look at buying shares in a company, I view it as being a partner of the business. Therefore, the partner's 1st intention should not be to extract dividends from the business, and certainly when the business seeks capital for growth, why elevate un-necessary capital costs that are detrimental to the shareholders (or as I say, to the partnership?). In another way if I was a partner in a business, I would prefer the business to keep the after tax cash and use it for growing the business. Not to expect that cash to be put in my pocket year after year. Then after many years, when the business has fully matured with no growth for expansion, THEN the dividend card be played.

  6. #46
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    I do do understand what you are saying and for start up/emerging companies I would agree with you. But once that company is established I would personally want to get some income from it - either by way of cash dividends or by way of DRIP. The difference between your desire and mine is (and yes I’m making an assumption) is because we are poles apart in terms of our individual financial position/situation. Your investment goals are different to mine, for obvious reasons.

    Does any business/company actually ever reach the point where no more growth is possible? How do you make your call on when a company has reached that point?

    Quote Originally Posted by SBQ View Post
    You've missed my point, but that's ok (beginners aren't expected to know). When I look at buying shares in a company, I view it as being a partner of the business. Therefore, the partner's 1st intention should not be to extract dividends from the business, and certainly when the business seeks capital for growth, why elevate un-necessary capital costs that are detrimental to the shareholders (or as I say, to the partnership?). In another way if I was a partner in a business, I would prefer the business to keep the after tax cash and use it for growing the business. Not to expect that cash to be put in my pocket year after year. Then after many years, when the business has fully matured with no growth for expansion, THEN the dividend card be played.

  7. #47
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    If a company is paying a dividend then it must be making a profit. Not all profit is distributed thus leaving a varying % for further expansion.

  8. #48
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    Yes, but you said above, companies should not pay dividends until they are fully matured with no further room for expansion. My question is (as a beginner who is learning) do companies ever truly get to the point where no further expansion/growth is possible?

    Quote Originally Posted by 777 View Post
    If a company is paying a dividend then it must be making a profit. Not all profit is distributed thus leaving a varying % for further expansion.

  9. #49
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    Quote Originally Posted by justakiwi View Post
    Yes, but you said above, companies should not pay dividends until they are fully matured with no further room for expansion. My question is (as a beginner who is learning) do companies ever truly get to the point where no further expansion/growth is possible?
    Not my statement justakiwi. That was SBQ and I don't agree with him.
    Last edited by 777; 29-05-2019 at 06:43 PM.

  10. #50
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    Oops! Sorry

    Quote Originally Posted by 777 View Post
    Not my statement justakiwi.
    Last edited by justakiwi; 29-05-2019 at 06:44 PM.

  11. #51
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    Quote Originally Posted by justakiwi View Post
    Yes, but you said above, companies should not pay dividends until they are fully matured with no further room for expansion. My question is (as a beginner who is learning) do companies ever truly get to the point where no further expansion/growth is possible?
    Yes as I mentioned before, if the investor seeks dividends, they choose portfolios the consist of such companies. The likes of utilities, electricity companies where there's a finite limited market share and the companies have been in existence for many decades. This is not the case in NZ where the emphasis is expectation of dividends regardless of the 'type' of business they choose to invest in.

    Quote Originally Posted by 777 View Post
    If a company is paying a dividend then it must be making a profit. Not all profit is distributed thus leaving a varying % for further expansion.
    I used the example of The Warehoues Group in the past replies. In their early years on the NZX, they too had a 'dividend policy' which was basically a rout to strum up investors. The policy of paying a set dividend rate carried on throughout all the years when they needed capital to expand. It was inevitable that red sheds would open up in every decent size town throughout NZ but during those decades, they funded that expansion through bank loaning it to issuing more shares. Yes some years where they had a loss they still paid the dividend (done by borrowing additional funds and floating more shares to pay the out goings to shareholders).

    If the board of directors don't seem to have the same alignment view with their shareholders, then I must say they're not worthy of a company to invest in.

  12. #52
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    Quote Originally Posted by SBQ View Post
    Yes as I mentioned before, if the investor seeks dividends, they choose portfolios the consist of such companies. The likes of utilities, electricity companies where there's a finite limited market share and the companies have been in existence for many decades. This is not the case in NZ where the emphasis is expectation of dividends regardless of the 'type' of business they choose to invest in.
    I would like to see these two lists of 'dividend companies' and 'growth companies'.

    My investment in NZ's electricity gentailers has yielded very high growth over the last three years. I am talking a capital gain of 50% plus dividends. That sort of return would be very satisfactory for a growth company, but it has been achieved by investing in a boring no growth industry. Yes the electricity market in terms of MWh sold has barely grown in that time.

    Contrast this to my investment in Sky City which is plugged into NZ's tourism growth boom. These have fallen in value by 20% over the same period, even though dividend payments have been maintained to keep me happy.

    SNOOPY
    Last edited by Snoopy; 30-05-2019 at 09:33 AM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  13. #53
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    Quote Originally Posted by Snoopy View Post
    I would like to see these two lists of 'dividend companies' and 'growth companies'.

    My investment in NZ's electricity gentailers has yielded very high growth over the last three years. I am talking a capital gain of 50% plus dividends. That sort of return would be very satisfactory for a growth company, but it has been achieved by investing in a boring no growth industry. Yes the electricity market in terms of MWh sold has barely grown in that time.

    Contrast this to my investment in Sky City which is plugged into NZ's tourism growth boom. These have fallen in value by 20% over the same period, even though dividend payments have been maintained to keep me happy.

    SNOOPY

    What's been the EPS growth of the gentailers though? How much of the share price appreciation has been a P/E ratio expansion?

  14. #54
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    Quote Originally Posted by Lego_Man View Post
    What's been the EPS growth of the gentailers though? How much of the share price appreciation has been a P/E ratio expansion?
    BINGO! Someone that knows the importance of shareholder value. I'll reiterate, when NZ listed companies start hiding figures that really matter (ie EPS) or making investors manually calculating such figures.. then that tells me they're selling something else. Over in N. America, EPS is a major metric # in quarterly reporting. P/E also matters in value investments, but in NZ, it's of little relevance due to NZ's small size (when the company is the ONLY company in the NZ industry, then you can't go by any other benchmark). I also wonder in NZ finance news, why they don't report the performance of the companies in terms of EPS? On the radio they're great at saying how much sales has been achieved or growth in some area, etc. but why not figures that really matter like EPS?

    Trickery comes in all forms and the dividend policy is a good way to mask or exaggerate things for shareholders. I see directors of such companies stringing along or implementing the idea that as long as shareholders get the dividend, they can do other things that would be detrimental to the company, and when things get so bad that a dividend can't be paid, well then that's too late.

  15. #55
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    Quote Originally Posted by Lego_Man View Post
    What's been the EPS growth of the gentailers though? How much of the share price appreciation has been a P/E ratio expansion?
    For 'Contact Energy', it depends on which way you look at things:

    eps Growth

    I calculated 22.0c eps for FY2015 and 18.3c eps for FY2018. So all of the the share price gain has been in
    PE expansion!

    dps Growth

    If you accept 'anticipated dividend yield' is the motivation for the dividend hound to chase a share, I observe something rather interesting. Note I have adjusted the dividends to the after tax money received because not all the dividends below were fully imputed

    Dividends Paid over FY2016: 15c x (0.72) + 11c x (0.9237) = 21.0c

    Dividends Paid over FY2019: 19c + 16c x (0.8239) = 32.3c

    That means from an 'after tax dividend' point of view (+54%) the increase in dividend received is very closely associated with the 50% increase on share price. There was no contribution to the capital gain from PE expansion!

    SNOOPY
    Last edited by Snoopy; 30-05-2019 at 07:02 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  16. #56
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    Quote Originally Posted by Snoopy View Post
    For 'Contact Energy', it depends on which way you look at things:

    eps Growth

    I calculated 22.0c eps for FY2015 and 18.3c eps for FY2018. So all of the the share price gain has been in
    PE expansion!

    dps Growth

    If you accept 'anticipated dividend yield' is the motivation for the dividend hound to chase a share, I observe something rather interesting. Note I have adjusted the dividends to the after tax money received because not all the dividends below were fully imputed

    Dividends Paid over FY2016: 15c x (0.72) + 11c x (0.9237) = 21.0c

    Dividends Paid over FY2019: 19c + 16c x (0.8239) = 32.3c

    That means from an 'after tax dividend' point of view (+54%) the increase in dividend received is very closely associated with the 50% increase on share price. There was no contribution to the capital gain from PE expansion!
    In light of what I have said above, I think it is interesting to report what the then new chairman Sir Ralph Norris said about what he planned to do with cashflows once assuming office after the Origin Energy sell down. This period covers the circa 50% increase in value of Contact Energy shares since the former cornerstone shareholder Origin Energy sold out. From p6 AR2016

    "We have three choices for the cash flow: distribute to shareholders, pay down debt or reinvest capital in maintaining and growing the business. We understand that that investors are looking at Contact as a company with a strong dividend yield and so we continue to have a dividend policy that focuses on returning cash to shareholders."

    This statement from the Chairman couldn't be more clear in that he sees Contact as a dividend generating company. Over the subsequent time, Contact has indeed continued to pay out very generous dividend to shareholders. But the return that shareholders have accumulated from those dividends has been dwarfed by the capital growth in the share price over the same period. And that shows that even a determined 'dividend payer' can take a strong place in a 'growth portfolio'.

    I should add that I invested in Contact for the dividend, but have been pleasantly astonished at how the share price has grown since Origin sold out.

    SNOOPY
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

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