Investment & Investing

thanks - interesting.

Sorry to spam this thread with my accounting issues.... but... can you issue a dividend on a previous years profit? If so, is there a statute on how far back can you go?

Dividends are paid out of retained profits (or contingent liabilities, if interim).

Last year's profits become this year's retained profit at the start of the accounting period.

(I'm sure there's nuance etc... , but ianaa etc...)

Basic information here.

https://www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company

You can pay dividends on all available profits from current and previous financial years.

The aggregate value of previous year profits should be reflected in the Retained Earnings balance on the balance sheet. The double entries when a dividend is declared are a debit to retained earnings and a credit to dividend payable.

You shouldn't rely on this and you should seek expert advice.

apparently you can just take on debt and use that to pay dividends:

debt:
Thames Water: £11.7bn
United Utilities: £7.5bn
Anglian Water: £7.2bn
Severn Trent Water: £6.2bn
South West Water: £4.8bn
Yorkshire Water: £4.3bn
Northumbrian Water: £2.9bn
Wessex Water: £2.1bn
Southern Water: £2.1bn

dividends:
Anglian Water: £5.1bn
United Utilities: £3.1bn
Severn Trent Water: £2.3bn
Thames Water: £1.9bn
South West: £1.5bn
Yorkshire Water: £1.4bn
Northumbrian Water: £1.4bn
Wessex Water: £1.2bn
Southern Water: £902m

apologies for the off topic interlude.

@TW @user75580 Good news, thank you 🙏🏻

The double entries when a dividend is declared are a debit to retained earnings and a credit to dividend payable.

Its a bit more than that, I think (as a non accountant seek professional advice don't listen to mine etc)

When declared: cr dividends payable, dr dividends
When paid: dr dividends payable, cr cash
cr dividends, dr retained earnings

(Ordinarily, you'd expect dividends to be declared and paid close togertherr, particularly in a small limited.)

Any of you bean counters wanna try and translate this into English for me please?

Ex-entitlement Date: 29 October 2023
Rights ratio: 1 right - for - 10 shares
Subscription ratio: 1 share - for - 1 right
Exercise price: USD0.43 per new share
Pay date: 28th November 2023

Option 1: Rights to Lapse (Default)
Option 2: Rights to Exercise
Option 3: Apply for additional shares
The default option will apply to all Holders whose instructions are not received by the deadline date.

x has announced a Rights Issue whereby Shareholders have been issued with 1 right for every 10 NPV shares held. The ex-entitlement date is 29 October 2023.

Each right entitles the holder to subscribe for 1 new NPV share in x at a subscription price of USD0.43 per new share. Holders may also subscribe for additional shares following a full exercise of their basic entitlement. If you do not exercise your full basic entitlement your additional shares application will be removed. These additional share application requests may be subject to a scaling back.

In addition, holders will be issued with 3 free options for every 4 new shares subscribed for. Each option can be exercised for 1 new NPV share at a price of USD0.65. Options expire on 30th November 2024. Holders wishing to exercise the resulting options must contact us at least 10 working days before the expiry date.

Shareholders who wish to participate in this Offer should note we may be required to forward the beneficial holders' name, registered address, domicile and holding as of record date. With your instruction you are confirming that you are aware of the official restrictions and giving consent for us to forward the abovenamed details to our custodian if they are required.

The making of this Offer outside of USA may be restricted. The Company may amend the restrictions at random and may choose to extend the restrictions to include any residency. Therefore, please be aware that your election may be rejected even though your name and address have been disclosed. The final decision as to the eligibility of your election is at the discretion of the Company.

Please ensure you have cleared funds in your account by our deadline date. Subscribing Holders will be credited with their new shares around the 28th November 2023.

It is the responsibility of any person wishing to subscribe for new shares to inform themselves and observe any applicable regulations of the relevant jurisdiction. With your instruction you are confirming that you are eligible to participate and are aware of the official restrictions.

Some kind of share dilution, but "international rights issue" makes it sound like it's just for forrun muck or something.

perfect ChatGPT fodder (though the summary seems longer than the original)

...

Sure, let me explain the terms provided in plain English:

Ex-entitlement Date (29 October 2023): This is the first date on which the shares will trade without the entitlement to the rights issue. If you buy shares on or after this date, you won't receive the rights that are being issued.

Rights ratio (1 right for 10 shares): For every 10 shares you own, you'll receive 1 right.

Subscription ratio (1 share for 1 right): You can use one right to buy one new share.

Exercise price (USD0.43 per new share): If you choose to use your rights to buy more shares, each new share will cost you $0.43.

Pay date (28th November 2023): This is the date when you need to have paid for any new shares you've subscribed to, and when those new shares will typically be added to your account.

You have three options:

Let the rights lapse (default option): If you do nothing, your rights will simply expire. You won't get any new shares, and you won't be out any money.

Exercise your rights: You can choose to use your rights to buy more shares at the stated price of $0.43 each.

Apply for additional shares: After you've used all of your rights, you can ask for more shares. However, there's no guarantee you'll get them, as it depends on whether there are extra shares left after everyone else has used their rights.

If you don't tell the company what you want to do by the deadline, they'll just assume you've chosen to let your rights expire.

Regarding the rights issue:

For every 10 shares you held before the ex-entitlement date, the company gave you 1 right.
You can use each right to buy one more share at $0.43.
If you want extra shares beyond your rights, you must first use all of your rights. But be aware, if not enough extra shares are available, you might not get all the extras you asked for.
They're also offering extra options as a bonus:

For every 4 new shares you get by using your rights, the company will give you 3 free options.
You can use each option to buy another share at a higher price of $0.65, but you must do this before the options expire on 30th November 2024.
When you respond to the offer, they might need to share your personal details with their custodian.

However, if you're outside the USA, there could be legal restrictions, and the company might reject your participation based on where you live.

Lastly, they remind you to make sure you have enough money in your account to pay for any new shares you want to buy and to check the legal requirements in your own country.

Right. I don't want to give them more money so I'll probably take the default lapse option.

Thanks duncs and duncs' new overlord Mr GPT.

Yeah this is them wanting to raise cash from shareholders so you get the choice - pay for more shares or don't (and accept your shareholding is diluted by all the people who do)

I wish they'd just put what you said at the top as a tl;dr.

The wife's employer is about to be bought by another company, and the value of the stock has rocketed.

The options she has have a 2025 expiry window :(

Semi-serious question - are there any brokers that will write options on those options, so that the mad gainz can be realised right now?

(I imagine the premium would be insanely high though.)

write options on those options

yo dawg, I heard you like options...

I'm all about the gammagamma

Depends on type of options us options can be executed prior to expiry, Europeans can't be, however not sure about selling, speak to a broker perhaps.

I think that there are some types of share where secondaries are an option but I’m not sure about your particular case or what you mean by expiry window (vesting?)

Like @Tenderloin, I'm not sure what you mean by a 2025 expiry window. Is this when the share options vest?

As I understand it with any takeover, the company buying usually settles any options, either via a cash payment or in issuing new shares options in the parent company. Have you looked at the terms and conditions of the original scheme, as that should set out what happens in the event of a takeover.

I think you are describing selling the options to a third party now to realise a large part of the expected future value?

I would think this is doable if there is a high value to the options (millions plus) but probably inaccessible to retail investors / Joe public.

@wildwest, @Tenderloin, @andyp, @user75580.

Thanks all.

Yep - I meant vesting.

Would that be the same as windowed American expiry option? As in - can exercise at any point before expiry, but windowed to be exercisable only after a certain date.

For example, the exercise window starts at 1 Jan 2025, you can exercise the options until they expire, say 1 Jul2025.

the terms and conditions of the original scheme

I did suggest that this might be an idea - it would seem, however, that nobody in the company has a scooby about a not-insignificant proportion of their remuneration!

the company buying usually settles any option

I realised that this would likely be the case later on in the day - I mean, after purchase, the shares would just not exist any more on any listing. Subject to the Ts&Cs of the option grant, I guess.

Tell you one thing, though - It really has tweaked my CapitalismIsBad knob.

I was being told about the people that have worked at the company since year dot, putting their existence into it, and ending up with a tiny fraction of a percent of the reward that the owners tweaked.

Like what the owners have contributed / what they have risked is 1,000 greater than that of the people that got them to where they are.

is this true even if s&p 500 is cheaper? on InvestEngine -- TER is 0.07 for Vanguard S&P 500 and 0.22 for Vanguard FTSE World ... and lots of overlap (but obvs the former is US heavy, but US tends to be a decent bet?).

US is about 6o% of global equity markets so a global tracker is pretty US-heavy anyway. I suspect that many people who invest in global trackers may not realise quite how much of it is US vs RoW.

If the US market tanks, a global tracker isn't going to do very well. But then if the US economy tanks, it's going to be a global problem anyway, so even if you don't have direct exposure, you can't easily escape having it indirectly.

It's the individual investor's call if they think the 40% non-US diversification is worth the premium.

makes sense, monevator also suggest doing a global bonds/uk gilts but they are doing horribly at the moment.

hard to know if that advice is still relevant now.

but then also seems risky putting all eggs in 1 basket (FTSE All-word, for ex).