This article appeared in the December 2011 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
Learn which companies offer the most generous shareholder discounts.
By Toni Case, Editor of TheBull.com.au
There are rewards for being a shareholder that have little in common with the company's share price, such as shareholder perks and discounts. Unlike share prices, shareholder discount schemes do not crumble in bearish sharemarkets and that's why some investors are so keen on them.
In the old days, all major banks gave shareholders a reward for buying their shares, the most popular being lower rates on home loans. With the exception of a committed few, most banks have done away with the scheme. Companies that have discontinued shareholder incentive schemes include Telstra, Qantas, Commonwealth Bank, ANZ and Westpac.
Shareholders in the National Australia Bank do not have to pay annual card fees on certain credit cards, or application fees on some mortgage products. Term deposit rates are higher by 0.25 per cent for NAB shareholders. To receive the perks you have to buy at least 500 shares in NAB, which means at the going price of $23 a share, you must invest at least $11,500. Remember that NAB also pays a yield of about 7.4 per cent fully franked.
Bendigo and Adelaide Bank rewards its shareholders by waiving application fees to a maximum of $1000 on home, investment, commercial and personal loans. Holders of term deposits can receive 0.25 per cent above the bank´s 12-month rate, there is between 5 and 20 per cent off insurance premiums, $1000 off the implementation fee for financial planning services, and discounted rates on credit cards.
AMP shareholders receive 0.75 per cent off variable rate home loans and 0.1 per cent discount on AMP's fixed-rate loans over one to five years.
Administrative costs killed them off
The cost of administering these discount services can be onerous, which goes some way to explaining why many companies such as the major banks and retailers have simply stopped offering shareholder rewards. One of the most popular packages was the former Coles Myer's discount card. Launched in 1993, it was so popular that by 2001 the number of shareholders in the company had swelled from about 68,000 to 580,000. The card was cancelled in 2005, with management saying administration costs made it unprofitable. David Jones axed its long-standing shareholder discount card in 2008.
From a marketing point of view, shareholder discounts make sense. For retailers, the card makes customers happy and encourages them to sign up as shareholders, underpinning demand for the company's shares. A problem cited by companies that have promoted shareholder discounts, only to cancel them later, is that it encourages an unmanageable number of smaller shareholders on share registries.
Today, not many retailers offer shareholder discounts. Fashion retailer Noni B is an exception, offering 10 per cent off purchases for shareholders holding more than 2000 shares (an investment of around $940).
Cost-benefit ratio small
Shareholder discounts, however tempting, should never be the primary reason for buying shares. Simply put, the upfront cost of buying the shares will probably dwarf any savings you make on the shareholder discount scheme. Using Noni B as an example, for the shareholder discount to cover the cost of the share purchase, you would have to spend $9400 at the retailer.
First and foremost, the reason for buying shares should be for capital gain and income. Shareholder perks and discounts should be seen for what they are, a bonus for shareholders.
It is hardly surprising that a sector that has embraced shareholder discounts is tourism and entertainment. Amalgamated Holdings, the owner of Greater Union cinemas and hotel chain Rydges, has a popular shareholder discount scheme. It includes 10 per cent off accommodation at Rydges hotels and 25 per cent off dining, and discounts on cinema tickets and ski lift passes. Shareholders must hold at least 500 shares to qualify.
Tabcorp also offers a comprehensive shareholder benefits scheme, including reductions on accommodation, dining, show tickets, gyms and parking across its Star City and Jupiters casinos, plus free admission to specific horse and greyhound racing events.
Shareholders in Mirvac receive a card that provides discounts on hotels and resorts across the group, including Sydney Marriott, Quay West and The Sebel. Discounts also apply to purchasers of Mirvac-developed real estate and commercial tenants within any Mirvac-owned building.
Some shareholder schemes require a substantial investment before discounts apply. For example, residential property developer Cedar Woods offers shareholders 5 per cent off the listed sale price of any residential lot within one of its projects. However, for the discount to kick in, a minimum of 5000 shares must be held for at least 12 months before the purchase of the lot, equating to about $18,000 at today's share price.
Health product provider Blackmores offers vitamins and other products at a 30 per cent discount on the recommended retail price, excluding its professional range, which is only sold through medical professionals.
Ocean Capital (OCE) is one of the few companies that offer discounts regardless of the number of shares held. You could hold just one share and receive hotel accommodation at the discount standby rate without the restrictions normally applied to standby rates.
Over the past 10 years, the number and quality of shareholder benefit schemes has diminished significantly. Online trading has replaced "buy and hold" share investing; shareholders are increasingly fickle but also more plentiful. Enticing shareholders with cumbersome benefits programs has become all too difficult and many companies have given up trying.
It is not out of the question that shareholder benefit schemes will stage a comeback. The retail sector has been one of the worst performers over the past year as online retailers cut into market share and consumers pare back spending. Major banks have also taken a hit. A shareholder discount scheme is the type of reward that can bring shareholders back - and better still, keep them for the long haul.
Here is a list of some shareholder discounts:
|Company||ASX Code||Min. shareholding||Discount|
|National Australia Bank||NAB||500 shares||No annual fee on some credit cards, bonus 0.25% on term deposits|
|Bendigo & Adelaide Bank||BEN||500 shares||Application fees waived up to $1,000, bonus 0.25% on term deposits, 5-20% off insurance, $1,000 discount on financial planning|
|AMP Limited||AMP||500 shares||0.75% off variable rate loans, up to 10% off home & contents insurance|
|Noni B||NBL||2,000 shares||10% off purchases|
|Amalgamated Holdings||AHD||500 shares||10% off accommodation, 25% off dining, discounted cinema passes|
|Tabcorp||TAH||1 share||Discounted accommodation, dining, parking|
|Mirvac||MGR||500 shares||Discounts on hotel bookings, real estate developments|
|Cedar Woods||CWP||5,000 shares, held for 12 months||5% off the listed sale price of any residential lot within one of their projects|
|Blackmores||BKL||1 share||30% off recommended retail price|
|Ocean Capital||OCE||1 share||Discounts on hotel bookings|
About the author
Toni Case is the editor of TheBull.com.au, Australia's leading trading and investing site. Each week TheBull's free newsletter offers 18 share tips from more than a dozen leading brokers, tailored share portfolios for income and capital growth, plus investing, super and property strategies.
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