Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Tim S]

Can someone explain the timing aspects?

For instance:


What about the people who buy the stock on Aug 24, 25, 26, 27, or 28?

For a "normal cash dividend" they'd be out of luck - that money goes to the stockholder of record.

But, this isn't a normal cash dividend, so how does it work?

The only date that matters is August 28th. The stock will split after the close on that Friday, and trade at the new price Monday morning.

 

[Steve m]

An explanation between stock splits and stock dividends

Stock Dividend vs Stock Split | Top 6 Best Differences (with Infographics)

 

[kanweg]

I don't know how I could have explained it clearer in my post. If you are not a US-taxeable person (or whatever they call it) you most certainly do. 15% is taken out.

Your link makes no reference to anybody not in the US.

I've only owned a few stocks other than Tesla and those only for a few days but around Christmas I got something like $5 paid into my account with a note that it was from a dividend and that 15% had been withheld. So yes it's real.

The more I think about it there is no chance the board would screw their non-US investors like this though. Heck many on the board are non-US investors.

in my country it is 25%...

one way to evade the tax is to sell before 21 August and buy back after.
If lots of people do that, that would be quite some volatility (and wouldn’t help those trying to evade the tax.

 

[StealthP3D]

Funny watching CNBC pretending they don’t get why a stock has a pop when a split happens.

I mean cmon. You really dislike TSLA that much that you have to act clueless?

I guess so...

I've seen a lot of stocks split as an investor, some of them multiple times, but I've never seen the media talking heads treat the "pop" that generally happens with such ridicule! But we know the media hates Tesla. This is good and it's why all the youngsters who don't respect traditional media want to buy a Tesla as soon as they can afford a new car!

 

[StealthP3D]

in my country it is 25%...

one way to evade the tax is to sell before 21 August and buy back after.
If lots of people do that, that would be quite some volatility (and wouldn’t help those trying to evade the tax.

Come on you guys, use some common sense. No value is created by this dividend and thus the dividend is not a taxable event.

 

[MP3Mike]

Where did you get this "non-voting" share stuff? TSLA doesn't have any special shares; they're all common (voting) shares.

A person that lends their share gets a fake/synthetic share back to hold that as no voting rights.

 

[StealthP3D]

IMO dividends is just a legal term that needs to be used for a stock split. It does not affect shorts.

The split doesn't affect the short-sellers but the same cannot be said for the stock split rally (6.5% in after hours).

 

[bballshinobi]

Yes - did you see at instant 2 how person A is now owed 5 shares? That’s where they got their 4 new shares.

From whom and where is Person A getting his extra 4 shares from? He doesn't own a real share, he owns a synthetic share that's basically an IOU from B. The only person holding a real TSLA share on 8/28 is person C

 

[Steve m]

Here is the Tesla press release

tsla-ex991_6.htm

What happens between Aug 21 and Aug 28 is going to be interesting.

Those who hold stock at close of Aug 21 will be given a dividend of 4 shares for every share they hold but that doesn't happen until Aug 28th.

So on Monday Aug 24th does the value of your stock drop to 1/5th? The other 4/5ths you can't sell until after you get them Aug 28th? Or will stock sales contracts between the 21st and 28th be arranged such that they will include the stock dividends?

I don't think this impacts shorts as they will just owe the additional shares and are due upon closing the short position.

 

[StealthP3D]

Correct. Stock dividends aren't taxable till you sell the shares.

The only 2 places I'm aware of dividend vs normal split matter are to short sellers, and a minor difference in back-end accounting for Tesla themselves.

If this stock split were treated as a dividend for tax purposes (it's not, not even when you sell the shares), the difference could not be called "minor". Because capital gains and dividends are taxed at vastly different rates. But this is a zero value "dividend" and it will not be taxed as a dividend even when you sell.

 

[ZeApelido]

Folks I come from the future - October 2020.

I have finally finished reading today's posts.

I feel like I should have learned something but in reality learned nothing.

But fear not, shorts are very unhappy in my current days.

 

[MikeC]

Maybe what I am missing is on Friday Aug 21 at 4pm the price changes to 1/5 immediately?
The press release from Tesla says the stock split adjusted price will begin on August 31st NOT August 21st which is the on record date.

There is a 10 day gap between on record for stock ownership and split adjusted price.

After the day of record is done, the price should immediately go to 1/5. People won’t receive their shares until several days later, after which they will trade on their split adjusted basis, not price. There will obviously be no free lunch.

My question is will our investment accounts look like they got killed during that period when the price drops one fifth but the 4 new shares haven’t come in yet?

 

[ZeApelido]

Also we are all fools and Adam "$10 - $500" Jonas is a genius.

 

[Bet TSLA]

After the day of record is done, the price should immediately go to 1/5. People won’t receive their shares until several days later, after which they will trade on their split adjusted basis, not price. There will obviously be no free lunch.

My question is will our investment accounts look like they got killed during that period when the price drops one fifth but the 4 new shares haven’t come in yet?

Please stop asking stupid questions. What do you not understand about "nothing will happen". It will all be pretty much invisible in all ways. If you start imagining something weird will happen, you're wrong. It is invisible by design and necessity. On the 31st everybody will have 5x the shares at 1/5 the share price, and all options will have changed to reflect that reality. Nobody will lose or gain a penny. There will be no taxable events. It's just an accounting artifact.

Just stop.

 

[kengchang]

Here is the Tesla press release

tsla-ex991_6.htm

What happens between Aug 21 and Aug 28 is going to be interesting.

Those who hold stock at close of Aug 21 will be given a dividend of 4 shares for every share they hold but that doesn't happen until Aug 28th.

So on Monday Aug 24th does the value of your stock drop to 1/5th? The other 4/5ths you can't sell until after you get them Aug 28th? Or will stock sales contracts between the 21st and 28th be arranged such that they will include the stock dividends?

I don't think this impacts shorts as they will just owe the additional shares and are due upon closing the short position.

No, the stock is still trading at pre-split price until 8/28. 8/31 is the 1/5th post split price.
If you sell your stock after record day, you forfeit the right to the additional 4 shares. There's no free lunch on Wall Street.

After the day of record is done, the price should immediately go to 1/5. People won’t receive their shares until several days later, after which they will trade on their split adjusted basis, not price. There will obviously be no free lunch.

My question is will our investment accounts look like they got killed during that period when the price drops one fifth but the 4 new shares haven’t come in yet?

No, the stock is still trading at pre-split price until 8/28. 8/31 is the 1/5th post split price.

 

[Tes La Ferrari]

I hold some shares in a Canadian TFSA (similar to US Roth IRA) and we have a 15% withholding tax on dividend for US stocks. Not sure if I'll be impacted as if this is just some Delaware legalese words amounting to a split... But if this is considered as a "real" dividend, I'll lose 15% of the new stocks? I guess I'll need to contact some tax accountant here as this is quite frightening..

Lots of Canadians here.

Wonder what the tax impact of this split will be to shares held in TFSA’s and in cash accounts?

would they be taxable as dividends in the cash ( non registered ) accounts right away ?

the ideal setup would be if they are taxed as dividends but only upon disposal of ( sale ) of the shares.

 

[Steve m]

No, the stock is still trading at pre-split price until 8/28. 8/31 is the 1/5th post split price.
If you sell your stock after record day, you forfeit the right to the additional 4 shares. There's no free lunch on Wall Street.

That is what I covered when I stated that the sales contracts include the additional shares. Otherwise on Aug 24th the price would have to drop to 1/5th.

I agree this will be largely invisible to the public and will be handled behind the scene by the brokers and trading systems.

 

[StealthP3D]

The fact remains there’s psychology involved whether you think it’s stupid or not, it exists. People would rather buy 5 shares for $1500 than 1 share for $1500. 5 is more than 1 despite both having the same value in the moment.

Oh, you don't have to tell me about the "more is better" mentality, I learned that at an early age. Four years old to be exact.

I used to go next door to my 4 year old friends house for graham crackers. His mom would set up a card table in the garage so we could eat them with a small glass of milk. Why in the garage? Because it would get messy. Timmy would break his in half and tell me he "had more" than I did. But not for long - I would break mine into 4 sections and say "not any more". It didn't take long before Timmy's cracker was just a pulverized pile of powder that ended up on the garage floor as he always ended in an excited tantrum pulverizing them with his fists as he declared himself the winner while spreading the powder left and right off the table saying he had "millions" of crackers. But I was a smart kid who stopped before the powder stage so I could still eat mine. I could never figure out why Timmy seemed so intent on making powder and why his mom seemed unconcerned about this odd behavior. I just liked the crackers and milk.

 

[Artful Dodger]

Tesla will issue 4*186M new shares. But the broker's books will show an extra 4*10.53M shares owned either by the owner of record or the lender. 10.53/186 ~= 5.6% of the new shares that are unaccounted for, and that will come straight from the short

Good analysis! Coincidentally, TSLA was up 6.46% at the end of the After-hrs session.

So, short covering until Aug 31, when retail buying pressure increases. That ol' S&P Committee better catch this train before it leaves the station!

EDIT: As of July 31, 2020 TSLA Short Interest (reported by NASDAQ) is at 6.41% that can't be a conincidence!

Cheers!

 

[woodisgood]

Oh, you don't have to tell me about the "more is better" mentality, I learned that at an early age. Four years old to be exact.

I used to go next door to my 4 year old friends house for graham crackers. His mom would set up a card table in the garage so we could eat them with a small glass of milk. Why in the garage? Because Timmy would break his in half and tell me he "had more" than I did. But not for long - I would break mine into 4 sections and say "not any more". It didn't take long before Timmy's cracker was just a pulverized pile of powder that ended up on the garage floor as he always ended in an excited tantrum pulverizing them with his fists as he declared himself the winner while spreading the powder left and right off the table saying he had "millions" of crackers. But I was a smart kid who stopped before the powder stage so I could still eat mine. I could never figure out why Timmy seemed so intent on making powder and why his mom seemed unconcerned about this odd behavior. I just liked the crackers and milk.

Fast forward to midlife and Timmy likes to play the penny stocks...