Shareholder perks - Nice, but not the main game
THE opportunity to have a stake in a well-run company paying reliable, tax-friendly dividends with the prospect of long-term capital growth is what quality shares are all about.
But some shares offer the additional bonus of shareholder perks. These can be the icing on the cake when shares perform well, or a consolation prize if the shares lag behind.
Some, though not all, of our publicly-listed companies acknowledge the value of investors with various discount offers.
As a guide, National Australia Bank offers shareholders preferential rates and reduced fees on a range of financial products and services. The benefits are even extended to a shareholder's spouse or children.
In fact, shareholder perks are reasonably common among financial institutions. AMP shareholders for instance can be entitled to an exclusive rate discount of up to 1.0% on certain AMP Bank home loans.
Among other companies offering investor perks, fashion retailer Noni B gives shareholders a discount of 10% on in-store purchases. Shareholders in Mirvac can claim discounts on accommodation at some Accor and Travelodge hotels. Amalgamated Holdings (the owner of cinema chains like Greater Union) also offers shareholder benefits.
In many instances you'll need to hold a specified number of shares to be eligible for the discounts, but holding a relatively small parcel of shares can provide a worthwhile benefit.
With AMP for instance, you only need to own 500 shares to access shareholder benefits. Based on the current (at the time of writing) AMP share price of around $5.40 that would mean investing about $2,700 to secure a substantial home loan rate discount.
By contrast, you need to own 2,000 shares to take advantage of the shareholder benefits offered by Noni B.
With the stock trading at about $0.45, this means investing around $900 to claim a 10% saving. Put differently, a shareholder would need to spend more than $9,000 on the company's fashion lines to recoup the $900 cost of the shares.
This highlights why I wouldn't recommend buying shares on the basis of any freebies, as pleasing as they may be. The overwhelming consideration when you invest in shares should be the ongoing dividend yield and potential for capital growth. These factors should significantly outweigh short-term discounts.
Moreover, accessing shareholder benefits can encourage investors to hang onto a stock that either continually underperforms or which is no longer suited to the investor's personal goals.
A further point worth stressing is that if you read the fine print, in any shareholder benefits package, you'll often find that these deals can be cut back at any time.
They are offered at the directors' discretion and if the sweeteners prove too costly to the company they can be watered down or cancelled as has happened with similar programs in the past.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.