Rob Coyte's Blog

 The nature of this crisis was a “Credit Crisis”. This meant that banks and lenders of money were calling in loans and not lending money to every day businesses.

Direct Shares

• Companies choose to keep cash rather than payout to shareholders as they were uncertain about whether or not they would need to repay debt to their bankers or indeed if they needed cash to fund their own development and business as credit markets dried up.
• Most companies have raised capital from investors where necessary and “solved” this dilemma so in general most shares have now returned to paying “normal” level of dividends. This will take some time as dividends are paid every 6 months at best.

Managed Funds

• Managed Funds own shares and these investments made substantial capital losses over the last 2 years and the amount of dividend income from these investments was quite low (for above reason).
• Managed funds only pay distributions based on taxable income (very simply). As there was no taxable income distributions were very low.
• They have now started to see capital gains however these gains are only offsetting previous losses. Therefore form a taxable income perspective they nullify each other out so once again the distributions will be down. However, in saying this now that the “losses” have been utilised going forward they will have no choice but to distribute income as it is earned.
• With dividends from the underlying shares returning to normal the level of distributions is higher than it had been previously (virtually nil).

Property Investments

• Property investments involve debt and have therefore been hit hard by this crisis.
• Banks have increased the cost of this debt which is taking all available cash out of the structure. They are also demanding that these vehicles repay debt which once again is utilising cash reserves making it unavailable for distribution to investors.
• Slowly but surely as these property vehicles address the issues they can go back to paying distributions but this will take some time.

Rob Coyte | Tuesday, July 20, 2010
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