Shares with benefits

PORTFOLIO POINT: Poorly promoted shareholder benefit schemes mean that many investors are eligible for discounts without even knowing.

Ever since John Fletcher famously cancelled the Coles Myer shareholder loyalty card in 2001, many investors have assumed that shareholder benefits are a thing of the past.

But the truth is that they still exist, with banks and leisure stocks leading the charge.

Last year Australia’s biggest bank Westpac cancelled its shareholder benefit scheme in a move that attracted widespread criticism, claiming that the scheme was too costly and had failed to garner much interest.

However, there are a handful of ASX-listed stocks – our quick survey turned up nine – still offering discounts and benefits to shareholders, some of which you may already hold.

So is the idea of rewarding shareholders an antiquated notion? Sean Nofal of Amscot Stockbrokers think so.

“Shareholder benefit schemes don’t entice shareholders – and they shouldn’t. However, they can sometimes sway a shareholder if they are trying to decide between two similar stocks and one is offering benefits and the other isn’t.” He adds that benefits that come with a stock purchase should be treated as an “added bonus” rather than a reason to base an investment on.

Lucinda Chan, division director at Macquarie Private Wealth, agrees, saying that investment in a company or a particular stock should be based on the fundamentals of a company such as what the company is doing, how good the management is and what the balance sheet looks like.

“Investors today invest in stocks offering good returns rather than just discounts. They are really looking for dividend payouts and a company’s performance. Attracting shareholders this way is a far more reliable way for companies to market themselves” she says.

Nevertheless, some of those stocks offering benefits, or 'added bonuses’, include a number of banks such as National Australia Bank and Bank of Queensland.

So what exactly are these stocks offering as a reward for your investment?

NAB says on its website that it believes shareholders should be rewarded and that it recognises the “special role that shareholders play in helping NAB achieve success”.

It offers shareholders with 500 or more shares (valued at $12,595 on yesterday’s closing price) a bonus rate of 0.25% pa above the headline rate for a standard term deposit. It also waives the annual card fee on selected credit cards as well as application fees on NAB FlexiPlus Mortgage and NAB Tailored Home Loans – a saving of $600.

If you’re a BOQ shareholder, you get much more than just a great investment, according to the bank. To be eligible for its scheme, shareholders must hold 500 or more ordinary shares (valued at $5,280 based on yesterday’s closing prices).

Benefits include a bonus interest rate of 0.10% pa on any standard carded rate for any BOQ Premier Investment Account of $25,000 up to $250,000. Shareholders are also entitled to reduced interest rates, with discounts of up to 0.70% pa on a variable rate home loan or line of credit, and a reduced application fee of just $375.

ANZ, however, previously offered discounts on insurance products and fees and charges on bank accounts. The bank “discontinued” the benefits package in March 2007, explaining it was too costly to maintain, with only a small number of eligible ANZ shareholders taking advantage of the package. The bank says on its website that it believes “providing superior financial performance through capital and dividend growth is the best way to reward shareholders for their investment in ANZ.”

But it’s not just the banks that are rewarding shareholders. In the retail sector, health and vitamin company Blackmore’s still offers its shareholders 25% off the recommended retail price of all its products as well as allowing its shareholders to shop as its staff-only outlet in Sydney.

However those companies with the most discretionary rewards are those schemes within the leisure sector.

Amalgamated Holdings, whose brands include Rydges Hotels and Resorts, Birch Carol & Coyle, Event and Greater Union cinemas, offers shareholders a discount loyalty card. The card entitles shareholders to $10 movie tickets, 10% of Rydges hotels, 10% off lift passes at Thredbo ski resort, and 50% of food and drink at Rydges restaurants.

Similarly, Ardent Leisure, which owns theme parks including Dreamworld and WhiteWater World, as well as AMF/Kingpin Bowling centres, offers its shareholders a discount card that entitles holders up to 50% off entry tickets. The company also owns Goodlife Health Clubs and offers shareholders no joining fee and the first month of membership free.

Another leisure company, Tabcorp, offers free general admission entry into nominated thoroughbred racing events and special offers on accommodation, food and beverage, and other products and services at their hotel, casino and entertainment complexes.

The aim of the schemes are to increase the loyalty of shareholders, but Macquarie’s division director Chan says that another reason that some companies still offer benefits is for an extra platform in which to fight the competition, “These benefits are customer incentives and work to attract shareholders to the company’s goods and services as well as the shareholding. It’s about winning more business.

“Furthermore, once these shareholders are through the door, they will generally spend more money. It encourages customer loyalty and builds revenues.”

But Amscot’s online manger, Nofal, says that shareholder benefit schemes are a thing of the past because they can be costly for companies to run. One such example was the Coles Myer shareholder loyalty card.

The card offered shareholders a 3% discount on purchases at Coles supermarkets and Liquorland, 5% at K-mart and Target and 7.5% for non-big-ticket items at Myer. The shareholder scheme was hailed a success and was believed to have improved the bottom-line performance of Coles Myer's food and liquor division. However, the scheme was eventually deemed too costly and eventually ceased entirely.

Today Coles Myer as a company no longer exists after the supermarket arm was sold to Wesfarmers and the department store business bought by private equity interests.

However, prior to Myer's relisting debut on the ASX in November 2009, holders of the department store’s Myer One loyalty card were given priority access to the October book-build. So, in a strange way, instead of shareholders being given access to a loyalty scheme, loyalty scheme members were given shareholder benefits.

In the UK, only a small percentage of companies still offer benefits to shareholders, and again this is down to the administrative costs of such schemes.

Another reason is the rise of nominee accounts –where brokers hold shares on an investor’s behalf to make trading easier. One of the most well known share schemes in the world is offered by British Airways. The airline offers shareholders who hold a minimum of 200 shares 10% off flights when booked online, which can deliver frequent flyers with significant savings.

One controversial aspect to shareholder benefit schemes is that they tend to usually only attract smaller investors, says Dean Surkitt, state manager at Bell Potter Securities.

He says that the small shareholders get the same benefits as bigger holders, which means that shareholders who don’t believe in the performance of the company tend to reduce their holding to the minimum required to qualify for the scheme.

Which brings us back to Coles Myer.

While the scheme itself was a success in terms of shareholder advocacy, ultimately the performance of the company did little to inspire either retail or institutional investors to buy more shares.