Wierd stock dividend

One of my stocks is about to pay a 30% stock dividend. From this, I'll receive xx5.5 shs of stock in the same company. I'm quite accustomed to handling stock divs in Quicken, so there's no issue ... so far.

The difficulty is that, previously, all instances that I've seen of fractional shares received as a dividend have been handled in 1 of 2 ways:

1) the company just carries the fractional share on it's books, or 2) the company automatically sells the fraction and pays "cash in lieu".

This company's doing neither.

Rather, they're ROUNDING UP everybody to the next whole share. So while 30% of my current holdings would be xx5.5 shares, they're going to actually distribute xx6 shares. Like any other stock div, my current basis will be re-allocated across ALL my holdings of this company ...

But I have NO IDEA how to record this in Q05 H&B.

Any thoughts on the matter?

TIA

Reply to
danbrown
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Try recording it as a stock split. Quicken 2005 Deluxe asks the number of shares before and after, so you can put in the actual shares you get. It will then allocate the cost.

Reply to
Charlie K

No some stock dividends are income and some are splits...If it's a split then just calculate the split ratio. That's new share total divided by the previous share total.

Reply to
A Count

Dan, LTNS.

You are talking about a tiny fraction of your base cost in this stock, right? I mean, unless this is BRK A, you are talking about a 1/2 share over x hundred shares. Why not simply do a ShrsIn for the fraction?

Or if you are really anal about it, do a RtnCap of the value of that fraction, then do a buy at that same value. That will distribute your basis equitably, I think.

Reply to
Mike B

Mike (& others)

OK, I am a bit anal about my financial records ...

And HAD figured out the 2-step answer (stock div followed by a ShrsIn with a zero cost basis). In Q05, the stock div transaction asks for "New Shares issued per old share", which works fine for the xxx5.5 portion, but doesn't accomodate that pesky extra half-share. So I was/am looking for other ideas.

The StkSplit transaction, when I enter the final position (current shs plus xx6 shares) as NEW and the current position as OLD, brings up a dialog "This appears to be a 4 for 3 split. Is this correct?", which isn't correct because this is a 30% div, NOT a 33.3% div. If I click NO, since it isn't correct, a dialog "Enter the split ratio rather than the actual number of shares" appears, and refuses to proceed with those values.

It's starting to look like a 1.3:1 stock div, followed by a 0.5 ShrsIn may be my only option ... but I figured why not ask around.

Reply to
danbrown

Well, what about my Rtncap suggestion? That will reduce the cost basis of all your other stock by that fraction and then you can purchse the fractional share for that value? The more I think about it, the more elegant it becomes. :)

Reply to
Mike B

("This appears to be a 4 for 3 split. Is this correct?", which isn't correct because this is a 30% div, NOT a 33.3% div.)

Actually, it probably is correct. As soon as they give you the extra fractional share, it changes the percentage. Try it and see, if it doesn't end up the way you want. You can always delete the transaction.

Reply to
Charlie K

"No some stock dividends are income and some are splits"

Neither one is taxable income unless you get some cash out of it. Using the dividend function gets the ewact samer results in Quicken as using the split funtion. Try it if you don't beieve me.

Reply to
Charlie K

Accepting the 4:3 ratio adds 42.333 shares too many to the register. I currently have 1285 shares of the stock. 30% is 385.5 shares, but I'm actually getting 386 shares. The 4:3 ratio adds 428.333 shares.

Reply to
danbrown

I concur with Charlie K on this one. A stock dividend (as opposed to stock purchased/reinvested with a cash dividend) is really just a mini-split (the totally ludicrous 5% stk-divs are sometimes referred to as "chips" ... cause they're not big enough to be splits). And for either a stk-div or a split, the only thing that is happening is that your existing portion of the ownership pie is getting re-sliced ... but you end up with EXACTLY the same percentage of the total pie that you had before the stk-Div/split ... and you've actually received only that which you had before. If you had $5,000 worth of stock before the event, you'll have $5,000 after. No change & no income.

Reply to
danbrown

Well, a company can buy its own shares for the purpose of controlling the growth in the number of outstanding shares due to shares issued to employee stock options...or it can buy its own shares for any purpose. The purchased shares are not outstanding shares but can be treasury shares or can be converted to...unissued shares. So fundamentally there are two types of shares, outstanding shares and treasury shares...Giving treasury shares to stock holders would make the shares outstanding but would be a transfer of shares and not an issue of shares.

Actually, whether a stock dividend is income or not is a regulatory ruling (or notice to regulatory bodies) and involves government accountants looking at the books.

Also, a company may have a dividend reinvestment plan and it might run a cash dividend through the plan without option. (Dutch grocer Ahold did this.) But that is of course more obvious...

Another thing that can happen is that a large company can give stock dividends of tracking companies. Well, that's a spinoff (and involves two different ticker symbols) but if it is only a partial spinoff then it is likely an income dividend. And Genz did this...

Reply to
A Count

Hi, Dan.

This is a new one on me, but my GUESS is that you should record two entries:

  1. 30% stock dividend, resulting in holdings of 1285 + 385.5 shares for a total basis unchanged from your prior basis in the 1285 shares,

followed by...

  1. Taxable dividend of .5 share at current market value. The company should have calculated the value of this .5 share and reported it to you. The basis for this .5 share will be the same as the taxable dividend. I suppose the holding period for this .5 share begins with the dividend date, rather than with your original share acquisition, but you'll have to check that.

Since shareholders who held 100 shares will receive exactly 30 new shares and no fractions, your ownership share will increase ever-so-slightly after the dividend, so you end up owning more than you started with - and I suspect that you owe tax on the value of that increase. Sometimes a company will offer shareholders in such a situation an option to purchase a fractional share to round up to a full share by sending a check for the cost of the fraction. Since you got the fraction without paying for it, you have taxable income, it seems to me.

Have you looked on the company's website for an explanation of this? If you post the website (or at least the company's name), maybe we can help you interpret it.

RC

Reply to
R. C. White

RC, thanks for chiming in. The following is directly from the company web site:

The thirty percent stock split effected in the form of a stock dividend will result in shareholders receiving 0.9 additional share of common stock for each three shares owned on June 8, 2005, which was established as the record date for the thirty percent stock split effected in the form of a stock dividend. The payable date for the thirty percent stock split effected in the form of a stock dividend was established as June 22, 2005, with certificates issued pursuant to the thirty percent stock split effected in the form of a stock dividend to be mailed to shareholders on that date. No fractional shares will be issued; fractional share amounts will be rounded to the next whole share.

*** Now, I don't quite understand WHY they use the ".9 for 3 shares" terminology (as opposed to using a simple ".3 for each" construct), but I suppose I'll just have to wait and see what Fido (my broker) actually sends me.

re: this niggling little fraction, my friendly neighborhood tax attorney offered (over drinks) that the 0.5 share should have 0 cost basis, since it's part and parcel of the overall dividend. I can easily see the opposing argument that it's cost basis is, instead, the proportional value of the high/low prices on dividend receipt date. Again, I suppose I'll just have to wait and see.

Dan

Reply to
danbrown

Hi, Dan.

Did your tax attorney friend mention IRC Sec. 305(b)(2)? I'm not trying to argue the point; I've been away from the books too long to be qualified to do that. But it would be interesting to hear a qualified professional answer to this "disproportionate distribution" question.

Google found the language in that paragraph at

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8428&p=irol-newsArticle&IDq3145&highlight=. It might be worthwhile for you to contact the people listed at the bottom of that press release to ask the company's interpretation of the tax effects on you of this distribution, and on what authority they base that interpretation. And let your tax attorney friend see the reply. I agree that the amount is probably not worth sweating about, but it would be nice to know the correct answer, in case it comes up again - and it probably will. You need to know both: whether any part of the dividend is taxable to you (and if so, how much), and what is your basis for this fractional share - and for your other shares.

RC

Reply to
R. C. White

RC,

So, you're query, if I'm reading 305(b)(2) correctly, is whether the fact that some people won't be rounded up (because their initial receipt is an integral number of shares), and others will receive as much as 0.9 share (due to the round up) additional constitutes a "disproportionate distribution".

It's possible that my attorney friend will be at a dinner gathering tonight. If he is, I'll ask. But, if I recall correctly, his initial belief was that the whole matter fell under the various de minimis provisions and that the company was unlikely to issue 1099-DIVs for the round-up fraction since the company pays no other dividend.

Just to add to the fun and games ... I didn't, initially receive ANY fractional share OR the round-up fraction. When I called Fido, they informed me that, apparently, the company is issuing the fractional share and the round-up fraction on a week-delayed basis ... so that the various nominee holders can inform the issuing agent how many "pieces" they will need.

I still have to wonder why they bothered. With the possible exception of the round-up fraction, the shareholders actually received nothing ... and the stock was only trading in the $10-$11 range (not quite BRKA) so it's not like they had a concern about making the unit price more affordable. I suspect that some investment banker (and, possibly the Issuing Agent) made more on this deal than ANY shareholder.

Dan

Reply to
danbrown

Well, after all that, I ended up with cash for the fractional share.

The company, according to my account rep at Fido, considered ALL of Fido retail to be a single shareholder ... and provided the fractional round-up of less than a single share.

Fido had no choice but to calculate and provide "cash in lieu".

The account rep also opined that the purpose of the whole exercise may have been to increase the company's float.

Reply to
danbrown

Hi, Dan.

Thanks for the report back.

So, you'll end up reporting receipt of all the shares, including the fraction, and allocating your original basis among all of them. Then you'll show the sale of the fraction at the amount of cash you received, subtract the basis of that fraction, and report the gain(?) on your tax return. Right?

RC

Reply to
R. C. White

I recorded, in Quicken, a straight 1.3:1 stock split, and the sale of the fraction for cash. Quicken's stock split function allocated the cost basis properly. And, since this all took place in an IRA account, there's no tax considerations of my gain of $0.99 ... only investment tracking and analysis considerations.

Now, I have to wonder if treating ALL of Fido retail as 1 shareholder (technically correct, but certainly not 1 beneficial holder) was the company's plan all along ... or if the logistics of calculating all of those fractional shares owed finally dawned upon them, causing them to throw in the towel?

All in all, an interesting exercise in how screwy "corporate actions" can get.

Reply to
danbrown

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