Compass Diversified Declares Fourth Quarter 2023 Distributions on Common and Series A, B and C Preferred Shares
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Insights
The announcement by Compass Diversified regarding the declaration of quarterly cash distributions across common and preferred shares is a significant indicator of the company's current financial health and its ability to generate consistent cash flow. The distributions reflect a stable payout policy, which is crucial for income-focused investors, especially those holding preferred shares, who often seek predictable income streams. The declaration of qualified dividends implies that CODI has sufficient earnings and profits, which is a positive sign for investors as it suggests that the company is managing its resources effectively to maintain shareholder value.
Furthermore, the anticipation that distributions in 2024 will remain qualified dividends, subject to requisite holding periods, provides a forward-looking assurance for investors regarding the tax efficiency of their investments. The tax implications are further mitigated by the update regarding UBTI, which enhances the attractiveness of CODI shares for retirement accounts. This strategic tax positioning by CODI could potentially increase the demand for its shares among tax-sensitive investors, thereby possibly influencing the stock's market performance positively.
The differentiation between qualified dividends and return of capital is a crucial aspect for shareholders when it comes to tax planning. Qualified dividends are taxed at a lower capital gains tax rate rather than ordinary income tax rates, which can lead to significant tax savings for investors. CODI's ability to declare that the 2023 distributions are expected to be qualified dividends and the anticipation that 2024 distributions will likely follow suit, is an advantageous factor for shareholders from a tax perspective.
The elimination of UBTI allocations is also a noteworthy change, as it removes a tax barrier that previously affected tax-exempt entities such as retirement accounts. This change may encourage investment by these entities, as it simplifies the tax reporting requirements and reduces potential tax liabilities associated with UBTI. This could lead to a broader investor base for CODI and potentially enhance the liquidity of its shares.
The distributions declared by Compass Diversified across its various share classes are indicative of the company's targeted approach to shareholder returns. The tiered distribution rates for the Series A, B and C Preferred Shares, set at fixed percentages, demonstrate a structured approach to rewarding investors while maintaining corporate financial stability. This structured approach could be appealing to risk-averse investors who prefer investments with predictable returns.
Analyzing the impact of these distributions on the market, it is essential to consider investor sentiment towards dividend-paying stocks. In a low-interest-rate environment, firms like CODI that offer substantial and consistent dividends can become particularly attractive to investors seeking yield. However, it's important to monitor the company's ability to sustain these distributions without compromising future growth or cash reserves, as excessive payouts can lead to financial strain. The balance between rewarding shareholders and retaining earnings for reinvestment is a delicate one that can significantly influence the company's stock valuation and investor confidence.
WESTPORT, Conn., Jan. 04, 2024 (GLOBE NEWSWIRE) -- Compass Diversified (NYSE: CODI) (“CODI” or the “Company”), an owner of leading middle market businesses, announced today that its Board of Directors (the “Board”) has declared a quarterly cash distribution of
The Board also declared a quarterly cash distribution of
The Board also declared a quarterly cash distribution of
The Board also declared a quarterly cash distribution of
CODI’s common and preferred cash distributions should generally constitute “qualified dividends” for U.S. federal income tax purposes to the extent they are paid from “earnings and profits” (as determined under U.S. federal income tax principles), provided that the requisite holding period is met. To the extent that the amount of the cash distributions exceeds earnings and profits, such distribution will first be treated as a non-taxable return of capital to the extent of the holder’s adjusted tax basis in the shares, and thereafter be treated as a capital gain from the sale or exchange of such shares.
CODI expects all distributions paid in the 2023 taxable year to be qualified dividends (assuming requisite holding periods are met) since CODI’s earnings and profits in the 2023 taxable year are expected to be above cash distributions. It is currently anticipated, but not certain, that all 2024 distributions will be treated as qualified dividends, provided that the requisite holding periods are met. The final tax status of such amounts will be made and reported to shareholders in early 2025, when the determination of earnings and profits for the 2024 year is completed. The final tax status of the 2024 distributions may differ from this preliminary expectation.
In addition, shareholders subject to tax rules regarding “unrelated business taxable income” (or “UBTI”) will no longer be allocated UBTI from CODI, allowing ownership by certain retirement accounts that previously created tax implications.
About Compass Diversified (“CODI”)
Since its founding in 1998, and IPO in 2006, CODI has consistently executed on its strategy of owning and managing a diverse set of highly defensible, middle-market businesses across the niche industrial, branded consumer and healthcare sectors. The Company leverages its permanent capital base, long-term disciplined approach, and actionable expertise to maintain controlling ownership interests in each of its subsidiaries, maximizing its ability to impact long-term cash flow generation and value creation. The Company provides both debt and equity capital for its subsidiaries, contributing to their financial and operating flexibility. CODI utilizes the cash flows generated by its subsidiaries to invest in the long-term growth of the Company and has consistently generated strong returns through its culture of transparency, alignment and accountability. For more information, please visit compassdiversified.com.
Forward Looking Statements
This press release may contain certain forward-looking statements, including statements with regard to the future performance of CODI and its subsidiaries. Words such as "believes," "expects," and "future" or similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussion in the Form 10-K filed by CODI with the SEC for the year ended December 31, 2022 and in other filings with the SEC. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Investor Relations
Compass Diversified
irinquiry@compassdiversified.com
Gateway Group
Cody Slach
949.574.3860
CODI@gateway-grp.com
Media Relations
The IGB Group
Leon Berman
212.477.8438
mediainquiry@compassdiversified.com
lberman@igbir.com
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