- First special dividend of £14mn (30p)
- Second special dividend of at least £3.7mn (8p)
- Ongoing orderly wind-up of portfolio
Downing Strategic Micro-Cap Investment Trust (DSM: 57.5p) has announced a special dividend of £14mn (30p a share) after Milkwood Capital blocked a resolution at this month’s general meeting to return the cash through a tax-efficient B share scheme.
Milkwood acquired its 28 per cent stake from two institutional investors after shareholders overwhelmingly approved an orderly wind-up of the company and a proposed return capital at the first general meeting on 28 February 2024. The board states that the activist investor is seeking to secure the future management of the company’s portfolio for itself.
However, Downing’s directors are committed to “doing the right thing for our shareholders”, so have declared a first special dividend of £14mn (30p) to be paid on 26 April 2024 and plan to distribute a second special dividend of at least £3.7mn (8p a share) by 30 June 2024. The special dividend has no tax implications if you hold the shares in a tax wrapper (SIPP or ISA), but it could if they are held outside. Depending on your tax status, it may be better to sell the shares in the market before the shares go ex-dividend on 11 April 2024 to avoid a tax liability on the 30p a share of dividend income.
When that happens, Downing’s net asset value of £29.7mn (63.6p) will fall to £15.7mn (33.6p). If the share price adjusts accordingly to 27.5p, the shares will trade on a 17 per cent discount to proforma NAV of 33.6p even though Downing is successfully winding down its portfolio and retains several holdings that could be easily liquidated at current market prices. Moreover, there is upside potential to portfolio valuations from corporate activity, too. For instance, the holding in Aim-traded Equals (EQLS:124p) is firmly in play. So, if you are holding Downing’s shares in a tax wrapper, I would continue to do so. Hold.
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