National Grid - Southbank Investment Research

Participant

Hi Stephen,

I see that National Grid have announced a special dividend (which is presumably a good thing) but they have also advised of a share consolidation of 11 for 12…..

OK, I can understand if a share price increased a lot and they wanted to make the shares appear more accessible they might do a share split, or if the shares were ‘penny shares’ they may want to do a consolidation to give a ‘respectable’ share price but why on earth do an 11 for 12 consolidation? I presume it is so that the shares don’t fall in price after the special dividend but this is just ‘daft’…. Or am I missing something?

Nigel

Stephen Bland

Moderator

That’s exactly right Nigel. A number of companies have paid special dividends lately, accompanied by a share consolidation. The consolidation is purely to avoid what they perceive as the ignominy of the large price drop that would likely occur when the special goes xd. The ratio by which the number of shares is reduced is calculated so as create approximately the same share price before and after xd but that’s just a cheap trick in my view.

All smoke and mirrors really and in effect, these deals represent a forced sale of part of one’s holding. On balance I dislike them, if a company wishes to pay a special dividend then fine but I’d leave it at that. There is no financial need to accompany this with a share consolidation and if the share price falls at xd, well so what.

I see this as another typically unnecessary fashion trend by ovine company boards, no doubt propelled along by investment bankers who derive fees from this nonsense. It’s not unlike the needless fashion for share buybacks that has been so active in recent years for similar reasons. Both of these effectively act against the small private shareholder in favour of the large institutional shareholders but then who cares about the former? The ownership and market in big caps is totally dominated by institutions and other pros so there is little profit to be made from the likes of us individual investors.