Estimated Profit Posted February 25, 2015 Share Posted February 25, 2015 Let us see the damage done just from dividend taxes imposed on all shareholders: 22M shares times $10 per share dividend means $220M in dividends, and at average tax rate of 28%, shareholders are poorer by $62M... Don't forget many shares are held in accounts where distributions and gains are non taxable. Eg Retirement accounts and pension funds. The math isn't as straightforward as it seems. Link to comment Share on other sites More sharing options...
giofranchi Posted February 25, 2015 Share Posted February 25, 2015 What are the chances we look back in a few years and say it was a mute point how they financed it. I think they have just pulled another Zenith. This is a nice set of results! http://www.reuters.com/article/2015/02/25/brit-results-idUSL5N0VZ14620150225 Cheers nwoodman +1! :) Gio Link to comment Share on other sites More sharing options...
petec Posted February 25, 2015 Share Posted February 25, 2015 What are the chances we look back in a few years and say it was a mute point how they financed it. I think they have just pulled another Zenith. This is a nice set of results! http://www.reuters.com/article/2015/02/25/brit-results-idUSL5N0VZ14620150225 Cheers nwoodman +1! :) Gio +2 Except it's bigger than Zenith. 3/4s of another Odyssey... Link to comment Share on other sites More sharing options...
nwoodman Posted February 25, 2015 Share Posted February 25, 2015 +2 Except it's bigger than Zenith. 3/4s of another Odyssey... Fair point. They seem to be growing into these acquisitions nicely, 1.4b for Zenith and now 1.9 for Brit ;D So much happier to see them picking up quality and market position. Seems like they are a learning organisation after all and near death experiences of years gone by have shaped them (touch wood). cheers nwoodman Link to comment Share on other sites More sharing options...
giofranchi Posted February 25, 2015 Share Posted February 25, 2015 Except it's bigger than Zenith. 3/4s of another Odyssey... Yes! Wonderful! Imo the market is really undervaluing this deal… Gio Link to comment Share on other sites More sharing options...
FFHWatcher Posted February 25, 2015 Share Posted February 25, 2015 If you are in agreement that FFH can't just raise debt to fund acquisitions, and therefore must use a portion of equity, then he must keep the dividend. I understand that it doesn't initially make sense to pay a dividend and then turn around and issue equity but you have to then go through the scenario of what you are proposing. Scenario #1 a) Issue a dividend ($10.) and watch share price go down and back up by $20 within days of ex-dividend b) Buy a company c) Issue equity at the avg. trading price the week the deal is announced and issue debt to buy the company Scenario #2 a) FFH issue's a press release stating that they will NO LONGER BE PAYING A DIVIDEND b) Watch share price collapse by >$50. c) Buy a company d) Issue equity at a price that is $50. lower than what it would have been had FFH not stopped their dividend (therefore they have to issue 10% more shares), and issue debt as well, to purchase the company. What effect does issuing 10% more shares have on your BVPS calcs? Reality : Once you start a dividend, the unwritten rule is that the only reason to ever reduce or stop it is because you are in financial trouble. Even if you can allocate that capital better than your shareholders, is irrelevant at that point. Even if it will reduce the compounding affect over time, is irrelevant. A dividend does support a share price, to some extent, in most normal scenarios. If Prem ever wants to use FFH equity to finance a purchase, he is wise to keep the dividend. Years ago, after he made the decision to start a dividend, and now he is mostly locked into that decision from here to eternity. Paying out the $10. will pale in comparison to if he stops or reduces it. His hands are tied unless FFH gets into financial hardship again. Link to comment Share on other sites More sharing options...
cwericb Posted February 25, 2015 Share Posted February 25, 2015 I agree 100% with what Watcher just said and to add to that... This dividend debate has appeared in numerous threads over the past few years and there may be a certain basic misunderstanding on this subject as several posters are not Canadians. Fairfax is a Canadian company. Aside from Canadian’s Registered Retirement Savings Plans, where dividends and capital gains are sheltered, we also have certain tax advantages that apply to dividends from Canadian companies. 1. Canadian tax payers receive a tax credit that applies to dividends earned from Canadian companies. 2. Canadians also have Tax Free Savings Accounts. In a TFSA we can invest a certain amount in a company like Fairfax and pay not taxes on dividends or capital gains. Between the dividend and 30% increase in the Canadian share price in the past few months, this has worked well. Also I would like to point out that no one here is offering anyone advice on owning shares in Fairfax. It is simply a question of why own shares in a company if you disagree adamantly with one of their basic methods of operation? I think that a good number of shareholders actually agree with Fairfax issuing dividends instead of paying huge salaries and bonuses. Senior management gets exactly the same compensation as every other shareholder and thereby provides the ultimate incentive for performance. Also this Brit acquisition may pay off in other ways as it will probably raise awareness of Fairfax as a world class player in the insurance industry. Link to comment Share on other sites More sharing options...
petec Posted February 25, 2015 Share Posted February 25, 2015 I don't agree that his hands are tied - to hell with the market in the short term. But keeping the dividend flat, he's been cutting its significance vs. book value dramatically over time. Link to comment Share on other sites More sharing options...
petec Posted February 25, 2015 Share Posted February 25, 2015 I think that a good number of shareholders actually agree with Fairfax issuing dividends instead of paying huge salaries and bonuses. Senior management gets exactly the same compensation as every other shareholder and thereby provides the ultimate incentive for performance. Big +1 from me. I regard the dividend criticism correct in terms of pure financial theory but I remain a fan of the dividend in the real world of retiree owners, tax-protected accounts, alignment of staff incentives, maintenance of low pay for Prem, etc. Link to comment Share on other sites More sharing options...
kab60 Posted March 3, 2015 Share Posted March 3, 2015 Does anyone have a good estimate of BV following the recent transactions and equity offering? I didn't go into the details yet, and I'm not sure what a fair price is, but end of Q4 BV was just around $400 which implies af PB of +1,5. I'm looking at parking some cash in either Fairfax, Markel or Alleghany, but my exposure to USD is already very high and I like Fairfax' recent acquisitions. I just don't like paying a big premium to BV. Link to comment Share on other sites More sharing options...
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