Why I'm Buying Standard Life
With the Standard Life float almost upon us, one Fool explains why he's buying more shares. He also reveals a few snags to watch out for.
Since May, I've written about the flotation of Standard Life twice - in Standard Life: The Float Is On and Standard Life Windfalls Cut. Hence, I won't go into too much detail about the float, as I've covered most of what you need to know in the above articles.However, at the end of my second piece, I made the following remark: "The 5% discount may tempt me into buying extra shares on top of the shares which my wife will receive as a member of Standard Life. I'll let you know what I decide to do closer to the big day."To cut a long story short, I've decided to buy a few thousand extra shares in Standard Life in my wife's name. I did this for four reasons:Shares bought through the preferential customer offer attract a 5% discount, which would reduce the price from, say, 240p to 228p per share. That's a good start.If Mrs D holds these shares for a year, she receives one bonus share for each share held throughout this period, which is worth another 5% to her. Another tick in the box.The shares pay a decent income: the first dividend, payable in May 2007, will be around 5.4p, with a similar payout due in November 2007. With a total annual dividend of 10.8p, the shares yield 4.5%, which is almost 50% higher than the 3% yield of the FTSE All-Share index, which covers 700 listed companies. Thus, Standard Life shares fall into the "high yield" category, and I'm a big fan of shares which show me the money!As the vast majority of shares in Standard Life will be held by its members, City institutions and fund managers will have to pay a decent price to policyholders to buy their shares from them. Also, there's a chance that one of Standard Life's larger European rivals could take over the firm at some point, perhaps at a substantial premium to the launch price (which is announced on Friday).However, there are a few pitfalls to beware of in the coming weeks. Here they are, in brief:If you transfer your Standard Life shares into someone else's name, sell them and buy them back inside a tax-free ISA wrapper, or transfer them into a Self-invested Personal Pension, you will lose your right to receive bonus shares. For most people, this won't be a problem, but more sophisticated investors may need to do a little tax planning.My wife has asked Standard Life for a paper share certificate, as I advised her not to hold her shares in the electronic Standard Life Share Account. That's because its dealing charges are fairly high: 0.5% of the value of the deal for Internet or postal dealing (1% for telephone dealing), with a minimum of £15. On shares worth, say, £12,000, selling commission would amount to £60, compared to the £12.50 my own stockbroker would charge. Note that if you ask for a paper certificate further down the line, you will be charged £12 to transfer your shares out of the Share Account.Be careful if you decide to dispose of your existing investments in Standard Life after the flotation, as some with-profits policyholders plan to do. Thanks to increased demand for second-hand endowment policies and other with-profits policies, you could receive up to 30% more by auctioning or selling your policy to the highest bidder, rather than surrendering it to Standard Life. One traded endowment policy company, Surrenda-Link, reckons that Standard Life policyholders could lose £12 million in the second half of this year, simply by surrendering, instead of selling, their plans. Here's a list of companies which buy or auction with-profits policies.Finally, here's a timetable of the significant events up to and after the flotation:By Sunday, 9 July: Offer price, preferential offer price and allocation details revealedMonday, 10 July: Flotation on London Stock Exchange; dealing in shares beginsThursday, 13 July: If you have sold your shares and opened a Standard Life Share Plus Account, the sale proceeds will be deposited today.Monday, 17 July: If you have kept your shares, a paper share certificate or Share Account statement will be send to you. If you have sold your shares and requested a cheque, it will be sent on this day.More: Let the Fool help you compare investments, compare savings accounts and compare insurance quotes!> Standard Life Is Priced To GoDisclosure: Cliff is a Standard Life customer and writes for its customer magazine, "moneyetc".