Sometimes a Stock’s Payoff Is Found in the Perks
Pssst! Want to double your money on a stock investment?
Following a year when savvy money managers barely managed single-digit returns, such a prospect may seem too good to be true. And if you’re thinking cash, it is.
But there are a handful of companies that give their shareholders three-dimensional goodies--from household products and discount coupons to free admission to entertainment events--that can be twice as valuable as a share of the stock. The trick is finding the companies and buying just enough stock to get a good return on investment.
Consider Santa Anita Realty, which sells for about $14.25 a share. With just one share, you’re entitled to six free “clubhouse” tickets at the company’s Arcadia racetrack. The retail value of the tickets: $39. That’s a 275% return on your single-share investment (without taking into account a sales commission or, on the positive side, cash dividends or potential stock price appreciation).
Then there’s Walt Disney Co., the maker of blockbuster animated movies and operator of the famous theme parks. Disney shareholders are offered a $15 discount on Magic Kingdom Club Gold Cards, which entitle you to discounts on other Disney products. For the last several years, shareholders have also been allowed to attend the company’s annual meetings with a friend. Both attendees have received a free pass to Disneyland or Disneyworld in Florida.
Retail value of Disney’s perks: About $75. Recent price of one share of the company’s stock: $45. Return on investment: 167%
Quaker Oats, which sells for about $30 per share, sends new shareholders a welcome gift of cents-off coupons worth about $15. With each dividend check, you get more coupons for everything from the company’s cereals and syrups to pet food and snacks. But the real bonanza goes to those who show up for the company’s annual meeting, held near the Chicago headquarters. They get a book of coupons worth about $30, says Ron Bottrell, director of public relations. Total return for those taking full advantage of the goodies: about 150%.
Why are these companies willing to give so much away?
“We want people not only to own our stock, but also to be loyal consumers of our products--and to tell their friends and family about them,” Bottrell says. “We view this as a form of niche marketing. This is a group of potentially very loyal customers.”
Of course, not all gift-giving companies are so generous. Far more typical are the perks from Dial Corp., which sends about a dollar’s worth of coupons for company products with each 15-cent quarterly dividend payment. Or Wm. Wrigley Jr. Co.'s annual gift: a box of chewing gum--20 packs--worth between $5 and $7, depending on whether it’s sugar-free.
Minnesota Mining & Manufacturing, better known as 3M, gives new shareholders a $20 gift box. But existing shareholders get giveaways only if they come to the annual meeting.
The same holds true at Colgate-Palmolive, where new shareholders get between $3 and $5 worth of coupons entitling them to a handful of products. Existing shareholders get freebies only if they go to the annual meeting in New York.
Still, for shareholders who take advantage of the gifts, these items arguably boost their overall return on small holdings of stock.
Someone who bought one share of Dial at its recent $22 trading price, for example, could reasonably say that the dividend yield on the stock is roughly 20% annually--$4.60 per share--assuming he or she uses all the coupons and couldn’t have gotten them from another source. Because Wrigley shares sell for a little less than $50, the gift box provides an avid gum chewer with about a 10% return.
And in today’s sorry investment environment, where only the savviest or luckiest investors are posting profits, such returns are nothing to sneeze at.
There are a few significant catches. For example, these lofty returns assume that you hold just one share of stock--a definite rarity. You rarely get more coupons or more generous giveaways simply because you’re a more substantial investor.
Perhaps more important, companies are in no way obligated to continue giving the perks. If they find them too expensive, some firms simply do away with them.
Finally, there are the trading costs. Depending on the shares you buy and how you buy them, trading costs can amount to more than the price of the stock.
There are fairly inexpensive ways to buy, however.
For instance, if you’re a subscriber to the Moneypaper, a Mamaroneck, N.Y.-based newsletter, you can buy shares in roughly 850 companies through them ((800) 388-9993) for a trading fee of just $15 to $20. However, Moneypaper deals only in stocks that provide shareholder dividend reinvestment plans. Neither Disney nor Santa Anita does, so to buy a share in either of these firms you’d have to go to a broker. Even discount brokers typically charge $30 for such a trade. So you’ll pay nearly as much for the share and trading fees as you get in perks--at least in the first year. Presumably, the giveaways you get in coming years are gravy.
Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.