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.
Good info dar, but I see the stock div only as a brilliant PR move at best, and definitely negative from the tax calculation standpoint as you point out. It gives the appearance of largely maintaining the dividend without the reality. That is, you will own the same percentage of SCCO after the dividend as before. No change. Would you rather own 5% of a company with a mkt cap of $10bn and 1bn shares outstanding, or 5% of a company with a mkt cap of $10bn and 1.1bn shares outstanding? No real difference. You own the same value, with the same tax basis. (Might be hard to tell the mkt cap did not change given moves in copper, the stock mkt, etc).
But the reduction in cash div is no big deal either - this was foreseeable and I posted so awhile back.
That said, many will think they are getting something when they get the shares, so from that perspective it is a great PR move.
For ALL the years I have been following SCCO; Dar has been a GREAT help in Financial Analysis and Economy Projections, not to even mention educating the Board. He has all my professional respect.
if you are calling DAR200 a manipulator then you haven't been in SCCO for too long. DAR has been here since I put my first dollar into SCCO in May of 2006 at around $98/share ($16 and change after the splits). Obviously, you haven't been here that long.
Listen aholes you guys can keep suckin each other off fine with me. All I did was come out and say the bs cheer leading over the weekend was wrong. The market proves me right so stop crying about it you were wrong and I was right. Bottom line is I am not short, I have been long scco longer than most on this board, I will be long long after most are gone and I don't give a shet if you listen to me or not. When I see manipulation I call the person out on it and that is what others were spreading.
I will buy back in but not till after earnings as scco may drop further.
You can wrap this in all of the tax calcs and strategy talk you want - but for people who own SCCO for no other reason than the CASH dividend (such as myself) this means one thing: time to sell. This stock is on all kinds of lists (as everyone knows) as a steady income stock, along with the likes of Altria, Verizon, Kinder-Morgan, etc. I don't want more shares - I want the cash. So my position will be gone before the end of the week. I know there are many many more SCCO holders like me.
Not to mention the announcement equals a 21% dividend CUT from the last one. Great for the company, but for shareholders, not so much.
I dumped my shares for a profit, but not the profit I expected when I bought :^(
Don't be too hasty. They've never done this before and they may never do it again. It is still a better dividend than most mining stocks pay and in the long run the shares will very likely rebound. Today is a triple downer: market down in general, copper down, disappointment with the dividend by many so naturally there is a sell off but it will rebound. GLL
When a company cannot pay a cash divi out of its cash flow it is a red flag regardless - no matter how you try to spin it with ho ha, arm waving about deferred tax.. deferred taxes aren't worth a hoot if your capital is eroded much more than the divi amount. So, what's next - a coupon to buy copper ingots from S. Copper instead of a cash divi?
Paying dividends in stock has been tried by other companies and with good success. There really is no downside. I have an investment in VE, a French waste management company that offers investors the option to take cash or stock. Most choose stock. This from their website:
"Nov 15, 2011 - Veolia Environnement
Success of the dividend distribution in shares
The option for the payment of the dividend in shares was widely chosen by Veolia Environnement's shareholders: 63.74% of the rights were exercised in favor of a payment in shares. This high rate of dividend distribution in shares will result in an increase of 382.3 million euros in the equity of Veolia Environnement."