SPK- Spark NZ (TELCO)

[Entrep]

Anyone else buying in at this level or waiting for lower levels.

Yes I 3x'ed my holding yesterday

[Snoopy]

Couldn't resist and bought some on close today. It appears the low for the last 2 days have been on close. That gives me 6.2% yld slightly better than bank. Hopefully it goes down more on every close this week to grab some more. Anyone else buying in at this level or waiting for lower levels.

I think you are comparing the 'gross yield' from the bank to the 'net yield' from your Spark shares 'see weed'. So you aren't getting 'slightly' more yield from your Spark shares. You are actually getting 39% (1/0.72= 1.3888) more money from those Spark share dividends, based on a 28% marginal tax rate.

If, OTOH, you are on a 33% marginal tax rate, the net interest you would receive on a bank term deposit at an interest rate 'I' would be: 0.67xI

Compare that to the money you would receive from a declared Spark dividend 'D' (tax paid) at the same 33% tax rate: 0.67xD/0.72
Now let's take the special case where the net dividend from Spark 'D' just happens to be equal to the gross dividend 'I' that you might get from a term deposit (IOW in this special case D=I).

(Just as an aside with the immediate historical dividends for Spark of 13cps and 13.5cps (a total of 26.5cps) and a Spark share price of $4.30, this gives a net yield of 26.5/430= 6.2%. Hunt around and you can get 6.2% on a one year term deposit. So my 'special case' example of the net yield from Spark shares being equal to the gross yield on a bank term deposit isn't so far fetched! )

That means the extra income you would be getting from the Spark dividend would be a multiple: [0.67xI/0.72]/[0.67xI]= 1.3888 (again).

That in turn means as a Spark shareholder, even at the higher marginal tax rate, you are still getting 39% more money than you would have got from a bank term deposit, despite the fact that in absolute terms, the net income from your (theoretical alternative) bank term deposit would be lower and your dividend income would likewise be lower (because you are on the higher 33% marginal tax rate).

SNOOPY

[waikare]

I think you are comparing the 'gross yield' from the bank to the 'net yield' from your Spark shares 'see weed'. So you aren't getting 'slightly' more yield from your Spark shares. You are actually getting 39% (1/0.72= 1.3888) more money from those Spark share dividends, based on a 28% marginal tax rate.

If, OTOH, you are on a 33% marginal tax rate, the net interest you would receive on a bank term deposit at an interest rate 'I' would be: 0.67xI

Compare that to the money you would receive from a declared Spark dividend 'D' (tax paid) at the same 33% tax rate: 0.67xD/0.72
Now let's take the special case where the net dividend from Spark 'D' just happens to be equal to the gross dividend 'I' that you might get from a term deposit (IOW in this special case D=I).

(Just as an aside with the immediate historical dividends for Spark of 13cps and 13.5cps (a total of 26.5cps) and a Spark share price of $4.30, this gives a net yield of 26.5/430= 6.2%. Hunt around and you can get 6.2% on a one year term deposit. So my 'special case' example of the net yield from Spark shares being equal to the gross yield on a bank term deposit isn't so far fetched! )

That means the extra income you would be getting from the Spark dividend would be a multiple: [0.67xI/0.72]/[0.67xI]= 1.3888 (again).

That in turn means as a Spark shareholder, even at the higher marginal tax rate, you are still getting 39% more money than you would have got from a bank term deposit, despite the fact that in absolute terms, the net income from your (theoretical alternative) bank term deposit would be lower and your dividend income would likewise be lower (because you are on the higher 33% marginal tax rate).

SNOOPY

Hi Snoopy, would the Imputation Tax Credits have some bearing on your return.?

[see weed]

I think you are comparing the 'gross yield' from the bank to the 'net yield' from your Spark shares 'see weed'. So you aren't getting 'slightly' more yield from your Spark shares. You are actually getting 39% (1/0.72= 1.3888) more money from those Spark share dividends, based on a 28% marginal tax rate.

If, OTOH, you are on a 33% marginal tax rate, the net interest you would receive on a bank term deposit at an interest rate 'I' would be: 0.67xI

Compare that to the money you would receive from a declared Spark dividend 'D' (tax paid) at the same 33% tax rate: 0.67xD/0.72
Now let's take the special case where the net dividend from Spark 'D' just happens to be equal to the gross dividend 'I' that you might get from a term deposit (IOW in this special case D=I).

(Just as an aside with the immediate historical dividends for Spark of 13cps and 13.5cps (a total of 26.5cps) and a Spark share price of $4.30, this gives a net yield of 26.5/430= 6.2%. Hunt around and you can get 6.2% on a one year term deposit. So my 'special case' example of the net yield from Spark shares being equal to the gross yield on a bank term deposit isn't so far fetched! )

That means the extra income you would be getting from the Spark dividend would be a multiple: [0.67xI/0.72]/[0.67xI]= 1.3888 (again).

That in turn means as a Spark shareholder, even at the higher marginal tax rate, you are still getting 39% more money than you would have got from a bank term deposit, despite the fact that in absolute terms, the net income from your (theoretical alternative) bank term deposit would be lower and your dividend income would likewise be lower (because you are on the higher 33% marginal tax rate).

SNOOPY

Thanks Snoopy for all your workings out and calculations. Have just broken half of one of my ASB investments...Savings Pluss = 5% but the other half will now drop back to 2.65% for next couple months. Am going to buy more SPK at this lower level. Hoping to make about 50c on top of divs., but even a 10c to 20c gain plus div is sure better than 2.65% to 5% with ASB. Also have a term deposit at 6.05% for 6 months not to be touched. So now SPK buy buy buy, which I was doing before EBITDAI down grade. Will have a reasonably good buy in order to help under pin the current sp.

[Snoopy]

Hi Snoopy, would the Imputation Tax Credits have some bearing on your return.?

Thanks for that point Waikare. I didn't specifically mention imputation credits. But imputation credits supplied by Spark as part of a dividend payment, represents tax that has already been paid by Spark on the net profits that are being distributed to you as dividends. So when I calculated the multiplication factor above (1/0.72= 1.3888), another way of thinking of this is that I am 'adding back' the imputation credits to calculate what the 'gross dividend was'.

Take the last dividend payment of 13.5cps as an example. The gross dividend that allowed this fully imputed dividend to be paid was:

13.5cps x 1.3888 = 18.75c

We know that:

Net Dividend + Imputation Credits = Gross Dividend

=> 13.5cps + Imputation Credits = 18.75cps
=> Imputation Credits = 18.75cps - 15.5cps = 3.25cps

What I am telling you in a long winded way is that imputation credits were included in my comparative return analysis in post 2162, even though I did not specifically spell out that this was the case. I hope that helps clarify things.

SNOOPY

[Snoopy]

At under $4.70. I was happy to 'answer the call' and pick up a few more Spark shares today. I cautioned investors about paying too much for Spark shares in my post 2126, with the future yield uncertain. But $4.70 represents a 13% discount to the capitalised dividend fair value target price of $5.40, that would have lock in that 6.5% gross yield I was after. Or put another way, my modelling suggests a gross yield of 7.5% at $4.70. That has to be value, and a sufficient discount to mitigate my income uncertainty risk. Especially when the latest Spark SPF600 5.45% bonds are currently trading at around 5.4% on the secondary market. Why would you want to own Spark bonds when the yield offered by the Spark shares is a full two percentage points higher? To me that just seems unfathomable! But I suppose that is why I am a 'share guy' and not a 'bond guy'.

A month later and a profit downgrade on, I have been back buying more Spark shares. Bought my latest parcel at $4.35. That sounds like a real bargain until they closed at $4.29 yesterday. While the expected Spark profit was downgraded, the forecast next dividend was not downgraded. Furthermore the downgrade only bought expected EBITDAI guidance back to the range where EBITDAI for FY2023 sat. So it wasn't a very serious downgrade. I suspect the blamed big IT contracts stalling in a stagnant economy, and all the downstream activity from that, are largely projects postponed rather than projects permanently cancelled.

$4.29 is a 20% discount to my capitalised dividend fair value figure of $5.40. Or put another way, buying today will get you a capitalised gross yield of 8.5%, when I would have been happy with 6.5%! Historically such discounts to fair value for an established utility do not last long. So rather than agonize over a few cents, what is driving my investment buying into Spark at these levels is FOMO. Having said that I still have the powder available to buy some more. But I might give it another month and let the 'dollar cost averaging' play out.

A purely speculative explanation for the SPK share price decline has already been referenced here:
https://www.goodreturns.co.nz/articl...or+30+Apr+2024

We learned this morning that EBOS has been demoted from the MSCI large cap index to the medium cap index. As I write this 'post MCSI announcment', EBO is down another 2%, with Spark off a further 0.5%
.
So if the selling of SPK shares was indeed connected to this 'EBOS index exit', we can now say 'job done'. It might now just be momentum traders carrying the SPK share price a bit lower again. But buying into Spark at these spectacular yields has made me lose all interest in the NZ listed property sector, PIE tax advantages notwithstanding.

SNOOPY

[FatTed]

Snoopy I guess if you wanted PIE tax advantage and Spark you could buy NZX DIV Fund

[SailorRob]

What am I missing here, going through some NZX looking for anything of interest.

SPK...

Revenue flat as the Earth for 10 years

Makes 400 like clockwork every year.

And selling for near 8 billion.

WFT???

Why the hell would you entertain paying anything like that??

Only worth $2. share max.

[ValueNZ]

What am I missing here, going through some NZX looking for anything of interest.

SPK...

Revenue flat as the Earth for 10 years

Makes 400 like clockwork every year.

And selling for near 8 billion.

WFT???

Why the hell would you entertain paying anything like that??

Only worth $2. share max.

Any reason you're looking at NZX stocks? Avoiding FIF if possible?

[SailorRob]

Any reason you're looking at NZX stocks? Avoiding FIF if possible?

Nothing to do with FIF, just generally aware the NZX has gone nowhere in 5 years and that some companies have had 20 years wiped off the share price, so figured I'd have a quick Look. But nothing remotely interesting apart from retirement sector.

The high quality companies you pay for and any hiccup will see them slaughtered.

It's a desolate wasteland.