Investments that offer non-cash rewards
From this July, Marks & Spencer shareholders can swap their cash dividends for gift cards offering a 10% discount in stores and online.
At first glance, this may seem like a gimmick, but it is actually a win-win for M&S and its individual owners. First, the high-street chain boosts its cash flow by not having to pay out cash dividends to private shareholders opting in. Second, loyal M&S owners can use their gift cards to enjoy a 10% discount, while recycling these payouts straight back into the business.
While M&S is the first FTSE 100 firm to offer non-cash dividends to its shareholders, a growing number of listed companies offer non-cash bonuses or rewards to encourage shareholders and bondholders to back these businesses with their spare cash. By boosting the non-cash returns from their shares or bonds, these companies can get away with paying smaller dividends, improving their cash flow.
Indeed, there are at least 40 UK-listed businesses that offer non-cash incentives to attract and retain shareholders. While the smallest sweeteners are worth only a few pounds, the biggest and best can save loyal shareholders hundreds of pounds every year.
Let's take at look at the non-cash sweeteners for shareholders of 10 well-known British businesses:
Company | Business | No. of | Rewards |
Carnival | Cruise operator | 100 | An on-board credit of £30 to £150, depending on cruise duration |
Greene King | Brewer and | 100 | Yearly discount vouchers for use in GK pubs and Loch Fyne restaurants |
Merlin Entertainments | Theme-park | 317 | A 40% discount off the price of either two Adult or one Family Merlin Annual Pass (applies to parks including Legoland, Alton Towers and Thorpe Park) |
Moss Bros | Clothing retailer | 1 | 20% off any purchase |
Mulberry | Fashion retailer | 250 | 20% off up to £10,000 of purchases at certain stores in the UK, Paris and Amsterdam |
N Brown | Home shopping | 1 | A 20% discount on mail-order purchases, subject to a maximum saving of £20 (1,000 shares), £40 (2,000), £200 (5,000) and a limit of £1,000 per year |
Next | Clothing retailer | 500 | 25% one-off discount voucher valid against most purchases |
Restaurant Group | Restaurant operator | 250 | 12 vouchers of 25% off food and drink for tables up to 10 people |
Thorntons | Chocolate retailer | 200 | 12 discount vouchers for use in Thorntons outlets in the UK and Ireland |
Whitbread | Hotels, restaurants | 64 | A book of shareholder vouchers |
Most of these shareholder rewards appear fairly straightforward, consisting of discounts, vouchers or credits to save money when spending.
However, many come with strings attached. You may need to own shares on a particular day of the year to qualify, so buying one day later could mean losing out for another year. Similarly, you may need to own shares for a qualifying period (up to a year) before these benefits kick in.
Bonuses for bondholders
As well as rewards for shareholders, a growing number of UK companies are choosing to reward their bondholders with non-cash payouts.
With a traditional corporate bond, bondholders get regular cash 'coupons', usually paid once or twice a year. However, largely thanks to a boom in crowdfunding, more and more businesses are issuing bonds with non-cash coupons. Here are three we have covered previously:
1. Burrito Bonds
Mexican restaurant Chilango's Burrito Bonds pay a yearly coupon of 8%, but also come with two free burrito vouchers. Investors buying at least £10,000 of these mini-bonds get a Chilango Black Card, entitling them to a free burrito every week throughout the four-year life of their bond. Chilango raised over £2 million last August via this offer.
2. Racing rewards
In May 2013, the Jockey Club - the biggest name in British horse-racing - raised £24.7 million by issuing bonds paying interest of 4.75% a year. These bonds also came with a bonus of 3% in 'Rewards4Racing Points' for use against purchases at the Jockey Club's 15 UK racecourses.
3. Chocolate coins
Last summer, Hotel Chocolat set out to raise £10 million by selling retail mini-bonds paying a yearly return of up to 7.33%. However, this entire return came in the form of Hotel Chocolat Cards or Tasting Club chocolate boxes, allowing bondholders to devour their delicious profits.
Show me the money!
One final word about non-cash rewards for shareholders and bondholders. While they can be a welcome bonus, never select shares or buy bonds purely for their perks. Your primary goal as an investor is to produce superior long-term returns, so first focus on capital gains and cash dividends.
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