Dividends Question

Elmo

If a company announces profits of 2MILLION euro could they ever be in a situation in the same year to provide their owners with 6million in dividends?

And should the 6million be used to pay off loans can they announce the dividend as a dividend?

SRASE

A company can pay dividends out of distributable reserves. For most private companies this is their Retained Earnings figure. They can pay €6million dividends on profit of €2m provided they have built up distributable reserves of at least €6 million.

I don't understand your second question.

smcgiff

Elmo,

It's up to the Board of directors to propose the dividend. There are many reasons for announcing a dividend. Say a company normally paid out six million in dividends then it may continue to pay out six million even if that was not covered by current year profits. Maintaining investor confidence would be one such reason for doing this.

Whether it would be financially better to pay off loans is one consideration, but many share holders may be expecting a certain amount of dividend as part of their own financial planning, which must also be taken into account.

Elmo

Company A announces a profit of 2million and a 6million dividend. The Investors of Company A announce that they are to use the 6million dividends to pay loans. I assume that Company A had built up profits from previous years to give such dividends. Is it worrying that the investors choose to pay of loans with the dividend?

Whether it would be financially better to pay off loans is one consideration, but many share holders may be expecting a certain amount of dividend as part of their own financial planning, which must also be taken into account.

Does it help shareholders (for their own financial planning) that it looks like the get a dividend? but that it then is returned to the company to pay off loans?

smcgiff

Elmo wrote: »

Company A announces a profit of 2million and a 6million dividend. The Investors of Company A announce that they are to use the 6million dividends to pay loans. I assume that Company A had built up profits from previous years to give such dividends. Is it worrying that the investors choose to pay of loans with the dividend?



Does it help shareholders (for their own financial planning) that it looks like the get a dividend? but that it then is returned to the company to pay off loans?

Hi Elmo,

Sorry just saw this now - I didn't pick you up correctly the last time.

Am I correct in thinking dividends were paid to shareholders that then loaned the money back to the company to pay off loans?

If so that makes very little sense as tax will need to be paid on dividends received by the shareholders. It would seem to make a lot more sense just for the company to use the funds to repay the loans.

dbran

Hi

What the recipients do with the dividends is their own decision and it can be announced as a dividend. As smcgiff said it is not a very tax efficient way to do this though.

Are the loans in question personal directors loans? Is this an Irish Company? Does it have subsidiaries or is it part of a group?

dbran

Elmo

dbran wrote: »

Hi

What the recipients do with the dividends is their own decision and it can be announced as a dividend. As smcgiff said it is not a very tax efficient way to do this though.

Are the loans in question personal directors loans? Is this an Irish Company? Does it have subsidiaries or is it part of a group?

dbran

Okay its TV3 . TV3 announced 2million in profits and 6million in Dividends. Their owners Dogherty Hanson (UK) used the Dividends to pay loans owned by TV3 to Anglo Irish. Dogherty Hanson are now in the process of bidding for the EBS. The dividends have to come from profits the previous year when the channel made ~20million.

Info taken from newspaper reports.

dbran

Hi

Interesting....

So they want to make their balance sheet look better by reducing the amount of debt without reducing their profitablity as dvidends do not affect profit. It also helps their share price as they are paying out dividends. So if there is a share for share exchange, their shares will have more value. Clearly taxation issues will be a minor consideration in this case.

And they probably want to get rid of Anglo from their balance sheet so they don't get NAMA'ed?


Kind Regards


dbran

Elmo

dbran wrote: »

And they probably want to get rid of Anglo from their balance sheet so they don't get NAMA'ed?

6m isn't really going to dent the 160m that they owe!

How would it effect Dogherty Hanson shares? Also it seems they may not interested in the EBS most likely it will be sold to IL&P.