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. However many banks have done away with the scheme, with the exception of a committed few. Companies that have discontinued shareholder incentive schemes include Telstra, Qantas, Commonwealth Bank, ANZ and Westpac.
Some banks continue to believe in offering these schemes. Although Westpac, CBA and ANZ shareholders no longer receive benefits, shareholders in NAB don’t have to pay annual card fees on certain credit cards, or application fees on some mortgage products. Term deposit rates are also upped by 0.25% for NAB shareholders. To receive the perks you have to buy at least 500 shares in NAB, which means at the going share price of $23 a share, you must invest at least $11,500. Remember that NAB pays also pays a yield of some 7.4% fully franked.
Bendigo and Adelaide Bank rewards its shareholders by waiving application fees on home, investment, commercial and personal loans to a maximum of $1,000. Like NAB, holders of term deposits can receive 0.25% above the bank´s 12 month term deposit rate; plus there’s between 5% and 20% off insurance premiums, $1,000 off the implementation fee for financial planning services and discounted rates on credit cards.
Suncorp’s not the only one to offer discounts on home loans – AMP shareholders also receive 0.75% off AMP’s variable rate loans, and 0.1% discount on AMP’s 1, 2, 3 and 5 year fixed rate loans.
The costs of administering these discount services can be onerous, which goes some way to explaining why many companies such the major banks and retailers have simply stopped offering shareholder rewards. One of the most popular packages was the Coles Myer discount card. Launched in 1993, the Coles Myer shareholder discount card was so popular that by 2001 shareholder numbers had swelled from some 68,000 to 580,000. The discount card was subsequently cancelled in 2005, as costs of administering the card were, according to management, unprofitable. David Jones also axed its long-standing shareholder discount in 2008.
From a marketing point of view, shareholder discounts make sense. In the case of 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% off purchases for shareholders holding over 2,000 shares (an investment of around $940).
Shareholder discounts, however tempting, should never be the primary reason for buying shares. Simply put, the upfront cost of buying the shares will likely dwarf any savings that you make on the shareholder discount scheme. For instance, using Noni B above as an example, for the shareholder discount to cover the costs of the share purchase you´d have to spend $9,400 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’s 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, amongst others, has a popular shareholder discount scheme. Discounts include 10% off accommodation costs at Rydges hotels and 25% off dining; there are also discounts on cinema ticket 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, parking and so forth across its Star City and Jupiters casinos, plus free admissions to specific horse and greyhound racing events.
Meanwhile shareholders in Mirvac receive a card that provides discounts on hotels and resorts across the group, including Sydney Marriott, Quay West and The Sebel amongst others. Similar 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% off the listed sale price of any residential lot within one of their projects. However for the discount to kick in a minimum of 5,000 shares must be held for at least 12 months prior to the purchase of the lot, equating to some $18,000 at today’s share price.
Health product provider Blackmore`s vitamins and other products get 30% off the recommended retail price if they become a shareholder, with the exception of their professional range that is only sold via medical professionals.
Ocean Capital (OCE) is one of the few companies that offer discounts regardless of the number of shares held. In essence you could hold just one share and in return receive hotel accommodation priced 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. Today 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.
Will shareholder benefit schemes restage a comeback? It’s not out of the question. 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.
National Australia Bank
No annual fee on some credit cards, bonus 0.25% on term deposits
Bendigo & Adelaide Bank
Application fees waived up to $1,000, bonus 0.25% on term deposits, 5-20% off insurance, $1,000 discount on financial planning
0.75% off variable rate loans, up to 10% off home & contents insurance
10% off purchases
10% off accommodation, 25% off dining, discounted cinema passes
Discounted accommodation, dining, parking
Discounts on hotel bookings, real estate developments
5,000 shares, held for 12 months
5% off the listed sale price of any residential lot within one of their projects
30% off RRP
Discounts on hotel bookings