Perks Shouldn’t Be Basis for Stock Investments
Q: My husband and I are thinking of investing in the stock market. I have heard that a few companies offer special “perks” to shareholders. Is this true? I heard that Disney was one such company, but surely there must be others. Do you know more?-- T.S.
A: Several companies offer special little “extras” to their shareholders. In most cases, these are consumer products and services firms that want as much to treat shareholders to a special gift as to let them try their products. In virtually every case, the little perks come as the companies’ products or services and the Internal Revenue Service does not consider them part of a corporate dividend, so they are not taxable.
Those offering bonuses include:
- Santa Anita, the racetrack in Arcadia, gives every shareholder of record on Nov. 15 passes to its club house seating section at the track. Holders of 1 to 99 shares receive six passes; holders of 100 shares or more get 30 passes. The passes, which would regularly sell for $6.50 each, entitle the holder to entry to the club house section during Santa Anita’s race season, which begins this year Dec. 26 and ends next April 27.
- CML Group., a specialty retailer whose holdings include Nature Co. and Britches of Georgetown shops, gives holders of more than 100 shares a 15% discount on purchases.
Other consumer product companies, such as Colgate-Palmolive and Quaker, send new shareholders a welcome package that includes free and reduced-price coupons for products. These firms also include similar coupons with quarterly dividend checks.
Sara Lee Corp., whose subsidiaries include Coach Leatherware and L’eggs nylon stockings, has given discounts on Coach products and coupons for $1 off L’eggs.
Although Walt Disney Co. has no formal policy on giveaways, every year it has given those attending its annual meeting a ticket to its amusement parks. You need not be a shareholder to get a pass, but it’s probable that only holders would attend an annual meeting, which next Feb. 18 will be in Orlando, Fla.
There are other types of shareholder perks beyond giveaways. Perhaps the most prevalent is automatic dividend re-investment. Under these programs, offered by hundreds of companies, shareholders may use quarterly dividends, as well as additional funds of their own, to purchase more shares of a company’s stock. Some companies give holders a discount of about 5% on the cost of shares purchased through the company. But even if no discount is offered, as is the case with most companies, the shareholders save the expense of brokerage fees on their purchases.
One final, and important, point to consider before plunging into the stock market: Please don’t make your investment decisions on the basis of whether a company offers you cents-off coupons, discounts on otherwise expensive retail goods or passes to the racetrack. Your decisions should be based on your understanding of a company’s products, markets and business strategy and your belief that the company will do better than its competitors. If you aren’t able to make those types of judgments, don’t fall back on perks and shareholder extras. Invest in a mutual fund.
College Savers Weren’t the Deal of a Century
Q: I am just furious that I didn’t participate in last week’s sale by the state of those special “college saver” bonds. Did I really miss out on a terrific deal? Will there be another chance?-- A.T.
A: Don’t worry. Most experts believe you didn’t miss a thing.
Although last week’s sale was a complete sellout, financial planners say investors may be better off waiting until interest rates rise before commiting themselves to bonds with maturities ranging from eight to 22 years.
Consider the facts: Interest rates are near their lowest point in a decade. Last week’s sale offered yields of 6% (for bonds with eight-year maturities) to 6.7% (for bonds maturing in 22 years). Do you really think prevailing rates will stay in this range for the eight to 22 years? Of course not. So why would you want to lock up your money for a long time at today’s prevailing rates?
Thank your lucky stars you missed the sale. This way you can invest your college savings in a short-term account. Although you probably won’t earn as much interest as the state bonds were paying, you will have the opportunity to move your funds to another, higher-paying investment when rates rise, as they invariably will. Furthermore, state Treasurer Kathleen Brown has promised to offer other college saver bond sales, perhaps next month. But interest rates will probably be as low as they are now, so you may want to wait even longer. You don’t want to lock yourself into low-yielding investments for the long term.
Which Transfers Escape Reappraisal
Q: In a recent column you mentioned that there was a family type of inheritance that would not trigger a reassessment of real estate for property tax purposes. I inherited a house from my sister several years ago. Instead of paying some $300 per year for property taxes, as my sister did, the reappraisal jumped the annual tax bill to more than $1,000. Is there something wrong here? --Y.G.M.
A: Actually, nothing is wrong. Only two types of property transfers are exempt from reappraisal for property tax purposes in California: transfers between spouses and transfer between parents and their children.
Any transfer between spouses is exempt. However, transfers from parents to their children--or from children to their parents--are limited to gifts or personal residences and $1 million in other real estate in a lifetime.
Since you inherited a house from your sister, the county was correct in reappraising it and increasing the property tax bill accordingly.
