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Why the Viva Energy (ASX:VEA) share price crashed 14% lower today

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The worst performer on the S&P/ASX 200 Index (ASX: XJO) on Monday by some distance has been the Viva Energy Group Ltd (ASX: VEA) share price.

In afternoon trade the fuel retailer’s shares are down a sizeable 11.5% to $1.39.

At one stage today they were down as much as 14.5% to $1.34.

Why is the Viva Energy share price crashing lower today?

The good news for shareholders is that today’s decline has nothing to do with a disappointing update or a broker downgrade.

Instead, this decline is completely attributable to Viva Energy’s shares trading ex-dividend and without the rights to an upcoming capital return on Monday.

In respect to its dividend, Viva Energy will be paying a 5.9 cents per share unfranked dividend to eligible shareholders on 13 October.

It is then rewarding shareholders handsomely with a massive 21.46 cents per share capital return on the same day.

Combined, Viva Energy is paying shareholders a total of 27.36 per share. Based on its last close price, this works out to be a sizeable 17.4% yield.

As you might have noticed, this yield is actually greater than the Viva Energy share price decline today. Which means its shares would be trading 6% higher if you took this out of the equation.

Why is Viva Energy returning capital to shareholders?

Viva Energy decided to return this surplus capital to shareholders after selling its entire 35.5% holding in service station property company Waypoint REIT (ASX: WPR).

The company received $734.3 million for its divestment, generating net proceeds of $680 million. Of this, a total of approximately $415.1 million will be returned to shareholders this month.  

Management explained its decision to return these funds despite the tough economic environment.

It explained: “The Company has had the opportunity to understand the scope of impacts, and the existing and potential impacts on the business. Whilst particular divisions of the Company have been impacted, the Company retains a strong balance sheet, and the proceeds from the divestment remain surplus to normal ongoing capital requirements of the business.”

“Accordingly, the Company has determined that distributing proceeds to shareholders remains in their best interest, and the most efficient mechanism is through a capital reduction and special dividend, in conjunction with the existing on-market buy-back,” it added.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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