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Southern Copper Corp. Message Board

  • danrichman54 danrichman54 Jan 28, 2012 2:43 PM Flag

    Stock divident = brilliant

    While a tax calculation pain in the butt for those who sell stock dividend shares to get the cash (and for those with multiple lots in a taxable account), this is an absolutely brilliant move on SCCO's part. I suspect this will be the norm until the earlier of:

    1. SCCO running out of treasury shares, OR
    2. Grupo's ownership decreases to 80% from a 10.31/11 80.858%

    Since the stock dividend is proportionate, the distribution of shares as a dividend will not change grupo's ownership percent. If grupo sells shares to raise cash, that will decrease it's ownership percent.

    It appears to me scco has not repurchased many, if any, shares since 10/31/11. It is still reporting 80.9% grupo ownership in this dividend press release as it did in October with the 3Q earnings press release. From the 3Q 10-Q, there were 840,980,000 shares outstanding at 10/31/11. From prior sec reports, grupo owned 680 million, or exactly 80% of 850 million outstanding before the renewed buybacks began. The second round of buybacks bought about 9 million shares.

    As of 10/31/11, SCCO had repurchased 41.852 million shares at a weighted average cost of 17.09 per share. Now it's using some of those shares as dividend currency at 36 per share. Not bad, more than a 100% gain with no income tax to scco. This dividend will cost about 8.998 million shares. At this rate we can see three more of them (4 x 9 = 36 out of 41.9).

    Theoretically, the market should adjust the per share price for more shares outstanding. To illustrate, 841 million shares at 36 = 30.276 billion. Take the same market cap and divide by 850 million = 35.6188 per share.

    From our end, the stock dividend is tax free. But, on a lot by lot basis, tax basis in an original lot must be apportioned to a bigger lot. To illustrate, somebody bought 1,000 shares for 25 per share for a lot cost of 25,000. After the stock dividend, this lot is 1010.7 shares. Each share now has a tax basis of 24.7353 (25,000 cost / 1010.7 shares).

    Dividend press release did not say whether fractions would be issued. I don't really care because apportionment of tax basis is Fidelity's problem.

    It also appears to me that Grupo's press to prepay the AMC Asarco debt is over now that the robber merger is dead. It's time to cash in, tax freee, on a very profitable stock buyback, saving cash for capex. Just brilliant, imo.

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