Rob Coyte's Blog
Recent Blogs
- Pardon? 15-May-2012
- Bank practices during the GFC 12-Apr-2012
- Current State of Dividends for Shares 19-Mar-2012
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Are You Prepared For The Inevitable?
According to a survey conducted by AC Nielson for IOOF, 37% of Australians have given no thought to estate planning or transferring wealth to the next generation. This can result in consequences such as disputes between family members, wealth being transferred to parties that may be contrary to the wishes of the deceased and adverse taxation outcomes.
Of those that did try and prepare for the inevitable, 8% were concerned that their estate might result in a dispute. Given the amount of split families and second marriages the likelihood of this happening is much greater.
The importance of having the estate planning process undertaken by a duly qualified professional is essential. Given that in today's world a lot of people have most of their assets in super funds, which may not be treated solely by the deceased’s will, and other trust or company vehicles, the importance of a holistic and thorough approach is essential.
As part of its overall strategy for clients, Centre Capital consider the estate planning ramifications for you and your family. If you are unsure what this means for you then please contact our office so we can review your specific circumstances.
What Is A Dividend; The Basics
Some people know that a dividend is paid into their bank account when they own shares but they do not really understand where it came from. The easiest way to do explain this is by way of example.
Let's assume we start a company ABC Ltd (ABC) that sells “widgets” by investing $1 million between all is shareholders. In the first year of operation ABC makes a profit of $150,000.
Now, management decide they need to retain $100,000 to grow the business by putting on more staff and marketing etc. The other $50,000 is not required so management pay this back to their shareholders as a dividend. The theory is that if the company cannot use it in a “meaningful” way they pay back to the investor to choose what to do with it.
If you are a shareholder in a successful business they will continue to grow profits each year which over the long term result in a growing stream of dividends being paid each year. Contrast this to a term deposit where the rate of interest remains constant (depending on level of interest rates) from year to year. If you are looking to grow your wealth or indeed retire off your financial assets we need to look at how can we generate the most income (over a long period of time). Being the owner of a successful business (or shareholder) is a great way to achieve this.
Did you know that Commonwealth Bank paid an annual dividend to shareholders of 44 cents in the year 1993 whilst in 2007 the annual dividend paid to shareholders was $2.56?
Want to Earn an Extra 2% pa in Your Superannuation Fund?
One of the biggest misunderstandings I see from clients is that they think because a superfund has a zero rate of tax in pension phase that there is no need to consider the taxation aspects of strategies within superannuation. Whilst they don’t necessarily have to worry about paying tax on earnings, there is a whole raft of strategies that can be utilised with a superfund to enhance the returns further for investors with the correct structure.
What this means in simple terms if we are putting together the right strategies we can have the tax man paying us money every year in retirement as opposed to us paying him money every year during our working life. One of the key steps in attaining these benefits is through the use of a Self Managed Superannuation Fund which enables us to access a broad range of strategies. Contact our office to find out how we can access a couple percent a year more for your returns by using the tax laws to our advantage.
BBI Executes Poor Suffering Shareholders
Yesterday the shareholders and Preference Shareholders of BBI voted in favour to the recapitalisation plan involving Brookfield Asset Management which is basically stealing some of the prize infrastructure assets in this country, including the Dalrymple Bay Coal Terminal.
At a heated AGM a shareholder called it “one of the greatest corporate disasters in Australia” and there would be not many counter arguments to this. The assets were prime quality and “safe” assets, the mismanagement of which saw debt levels climb to unsustainable levels once the economy turned and debt markets froze up. This meant that the company was unable to ride out the financial crisis and instead was forced into a position where they were at the mercy of their bankers and ultimately a self serving board and management.
The deal means that shareholders are effectively given 4 cents per ordinary share, a level some 98% below the investment value 2 years ago.
Unfortunately, it is another case where the poor shareholder is left out to dry while management and other parties concerned in causing the huge disaster walk away unscathed and intact.
How Do You Get Involved in a Company From the Ground Floor?
When we buy a business on the ASX, especially something like a BHP or Commonwealth Bank, we are buying a mature albeit high quality business. These business' are established in their markets and have a long operating history which whilst making it a “safer” investment the upside will not be earth shattering.
For those investors looking for a bit more “zing” in their portfolio and are willing to accept more of the unknown they can get into the early stages of a company’s development, making the rewards potentially quite outstanding. This style of investment is often termed “Private Equity”, “seed capital”, “pre IPO capital”. A great example of this sort of investment 5 years ago was the now prevalent JB HiFi stores.
Centre Capital currently has an opportunity with a company that it is working with to get this sort of exposure in what we consider to be the “investment spaces” of the next decade, protection of the environment and energy production. If interested please contact our office ASAP as there is only limited amount of opportunity.
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