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Valuing shares of Property Investment Co

How to value the shares of a property investment co for dividend purposes

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Hi colleagues. Hope you are all safe & well. I would most appreciate your comments on this issue. How do you determine the share price of a property investment company for dividend purposes? My client property investment co has high value properties thus high value net assets. I tried to value the shares on a net assets basis but because of the high net assets value the share price works out extortionate, apprx £2k per share. Could anybody help please. I would appreciate it.

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By paul.benny
03rd Jun 2020 12:40

Why do you think a £2000 share value is wrong?

With a property investment company, the underlying net asset value is a good indicator - as long as the asset valuation itself is sound. I would expect a discount for illiquidity.

What do you mean when you refer to "determining the share price for dividend purposes"? Is the company intending to pay a scrip dividend?

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Replying to paul.benny:
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By MGD
03rd Jun 2020 13:44

Thank you Paul for your kind response. I have allowed a discount too. It is a family company & a dividend will be declared for the first time. The valuation is to establish a share price to declare a dividend and not to sell the business. If a dividend is declared at that price the total amount payable will be in excess of a million. This is why I'm questioning the share price I calculated. The company has investment assets but it isn't rich in liquid assets.

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By Wanderer
03rd Jun 2020 19:57

MGD wrote:

The valuation is to establish a share price to declare a dividend ........

Can't see the connection myself, you need to explain a little more.
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paddle steamer
By DJKL
03rd Jun 2020 12:54

Share prices are a function of how many there are issued, just look at say Berkshire Hathaway re this point (appreciate not a property company)

If there are only 100 shares in issue then £2,000 each only gives a Market Cap of £200,000

For instance we have a raw (before discount) NAV per share of circa £350, but we have a fair number of shares in issue.

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By MGD
03rd Jun 2020 13:47

Thank you DJKL for your kind response. We have a large number of shares in issue & at that price the company won't have enough money to pay for the total amount of dividends declared.

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By johngroganjga
03rd Jun 2020 14:03

You are not making any sense. The share price has nothing to do with how much dividend the company can pay. That depends on the amount of retained profits on its balance sheet, and the amount of spare cash in its bank account.

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Replying to johngroganjga:
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By MGD
03rd Jun 2020 14:39

Thank you John.

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By johngroganjga
03rd Jun 2020 18:33

It was a pleasure. Are you going to explain why you see a connection between a company’s value and its ability to pay dividends, so that someone can help you?

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Replying to johngroganjga:
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By MGD
04th Jun 2020 10:43

Absolutely. We consider if the co. has distributable reserves to declare a dividend & if it has the money to pay for it. Having established this we then look at the latest final/management accounts to work out a share price before a dividend is declared. This client wants dividend vouchers issued to all shareholders receiving a dividend and on the voucher you need a share price. The share price I calculated on this particular co. seemed far too high being a property investment co. hence my query. The method I used was the net assets basis & I was querying if there was a different way to value shares for dividend purposes.

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Replying to MGD:
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By WhichTyler
04th Jun 2020 10:55

MGD wrote:

This client wants dividend vouchers issued to all shareholders receiving a dividend and on the voucher you need a share price.

But #1: the share price is not the same as the share value (wouldn't it be the nominal value on the dividend voucher rather than current market value)

But #2: the amount paid per share in dividend is not the same and has no dependence on share price (or value); you just divide he amount available for dividend by the number of qualifying shares)

You have started out right, but are confusing yourself along the way...

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Replying to WhichTyler:
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By MGD
04th Jun 2020 16:05

Thanks a lot for this. You are probably right.

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By Wanderer
04th Jun 2020 10:58

MGD wrote:

Absolutely. We consider if the co. has distributable reserves to declare a dividend & if it has the money to pay for it. Having established this we then look at the latest final/management accounts to work out a share price before a dividend is declared. This client wants dividend vouchers issued to all shareholders receiving a dividend and on the voucher you need a share price. The share price I calculated on this particular co. seemed far too high being a property investment co. hence my query. The method I used was the net assets basis & I was querying if there was a different way to value shares for dividend purposes.

£1 is probably the figure you need. Look at the statutory documents and stop worrying about value.
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By MGD
04th Jun 2020 16:06

Thank you very much. I confused myself.

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Psycho
By Wilson Philips
04th Jun 2020 11:01

Who says that you need a share price on a dividend voucher?

And as has already been established the price/value of the share has absolutely nothing to do with the amount/rate of dividend that can be paid. Unless, unusually, it has been agreed that the rate of dividend is a function (eg %age) of share value at the time.

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Replying to Wilson Philips:
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By MGD
04th Jun 2020 16:07

Thank you very much. I confused myself & I can see now where I went wrong. Thanks a lot for your help. Much appreciated.

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