It was an almost as expected Share Split announcement. But the sultry Adam Cole also showed a bit of unexpected ankle with a hint towards a dividend increase.
Live footage was captured of the reaction on FI Twitter:
This is bound to cause excitement but really we have to look at what we know and keep that very separate from the speculation.
What we know is that there will be an announcement on the 18th March with details and then the split will happen on the 26th March. That’s it.
Anything else you hear is pretty much a guess. I consider trying to predict what changes FI might make to be part of the game. But it’s a gamble.
In the past, with situations like this, we have seen traders make all kinds of assumptions about what is happening to the point where it becomes “twitter true” that they are going to do a certain thing. When FI actually do something different, people cry murder that they have lost money because their expectations were not met.
This would be our fault as traders for making bad guesses.
But like I say, I enjoy trying to predict it but we just have to keep that very separate from the facts that have been confirmed.
So, to the speculation. Massive warning that from here on, this is all a guess.
Reading the tone of the announcement, it seemed to be heading towards a 4x split, and that fits with my expectations as I said yesterday, it just feels like it puts the numbers in the right place with the top price players coming down to a fiver and without getting too far into too many decimal numbers.
The other notable point was the the “aim” was to make sure 1p was the minimum dividend. But that causes havoc with the maths behind the payouts. But, readers are in luck, for I happen to have a GCSE in maths. Hold my beer.
I think FI think in terms of the total they pay out per day, not necessarily in the decimals. So for example, at the moment 15p gets paid out in dividends on a treble media, which will be 3.75p after dividing by 4.
My guess would be that Adam Cole was implying that he was going to generously round that up to a 4p total pay out to keep the numbers round. But they then will have realised they need to reallocate exactly how much you get for being 1st, 2nd and 3rd.
If you did not do that, your 1st 2nd and 3rd placed payouts would be 2p, 1.25 and 0.5p respectively. And Adam says he wants 1p to be the minimum dividend. So you need to reallocate that, to something like 1.75, 1.25, 1. I’m guessing that because I think they like the “big win” so will give more to 1st place.
That would mean that the total payout on a treble media day would increase by 6.6%. Which would seem to me to be significant but potentially affordable and not outrageous.
However, there are holes in that because proportionately, you are doubling the 3rd place dividend and decreasing the 1st play payout by 14% in order to accommodate a 1p minimum dividend for 3rd. You either scrap that idea and accept a 0.75p dividend, or you add another 0.25p to the daily payout to avoid reducing the pay out for 1st place.
Fixing the “1st placed payout is reduced” problem however results in a 12.5% increase in total dividend payouts, which starts getting serious. The Board may have something to say about that.
Alternatively, they could do something entirely different to what I’ve just mused about. It isn’t just the maths that need to make sense. It’s the appeal of the product and they will make tweaks that make it simple and attractive to new users. They could also treat all of media and performance dividends as one big pot, and reallocate everything depending on whether they want to support media or performance dividends.
The Board could also intervene, slap them down, and say ‘c’mon guys we can’t afford this at all’.
End of speculation.
With this long enough already, and not many moves on today’s market that aren’t obvious, I’ll save some player analysis until tomorrow.
I think there is however a marked shift towards performance players. I have been expecting this anyway given the end of the transfer window and the approach of European competition.
However I think the chatter of increased dividends will also bring people back to the reality that dividends are the only true source of value on the Index.
If you find this post useful please like the post on Twitter or share using the below buttons. You can also follow me on Twitter at @_FI_trader for additional daily thoughts and tips.