In some European countries like Germany, France and Switzerland, there are companies that not only pay cash dividends to their shareholders, but also dividends in kind. What is typically understood as a stock dividend outside of Europe, here indeed can be the distribution of a real physical gift or cost advantage (discount) from a company to its shareholders – in addition to, not instead of a cash dividend. Which companies pay such gifts and what can an investor expect? And: is it worth it, do shareholders have any meaningful advantages?

Summary and key takeaways from today’s Weekly
– Dividends in kind can not only be paid in stock, effectively replacing the cash dividend, but also as a bonus on top of it.
– The former is rather a sign of current issues, while the latter is a nice additional reward for shareholders and a gesture of respect, but also an incentive and marketing program.
– In some cases, it can make sense to buy stocks of such companies – if their add-ons fit your lifestyle and if you are willing to buy the stock anyway without these amenities.

There are not only the typical cash or stock dividends that are distributed to shareholders. Maybe you have heard of them already (my European readers likely more so than those from other parts of the world).

A small selection of companies pays their shareholders dividends in kind in the form of either real physical products / gifts or gives them special discounts for following purchases of products or services. This is all in addition to the cash dividend – not as a replacement! I also found an example where longtime shareholders receive even a 10% extra dividend on top in cash.

As there are always new exciting things to learn when spending time on investments, I concluded that this is a topic worth to discuss.

Below, you see a picture of an open chocolate box from the world-wide known Swiss producer Lindt & Sprüngli (ISIN: CH0010570759, Ticker: LISN). This is of course not exactly the dividend in kind that shareholders receive. But if you own at least a share which currently costs just close to 110,000 CHF (yes, indeed!), then you are eligible for a 4 kg box (around 8.8 pounds) with a selection of their assortment.

The only problem is, you have to attend the annual General Meeting – or have an address in Switzerland where it can be shipped to, as far as I am informed correctly.

There are also other interesting dividends in kind that can be collected.

In today’s Weekly, I am going to give you an overview about these extraordinary payouts. There are some really interesting examples that can even boost your total return – however, not in the way you might think.

Of course, I will also try to answer the question whether these dividends are worth it or whether shareholders do have any meaningful advantage compared to those receiving “only” the traditional pure hard cash payout.

Before we jump into this week’s topic, an important announcement first: My next investment idea will be published next Saturday, 08 July 2023, for all my members (Premium and Premium PLUS).

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The core topic is light intolerance or “phototoxicity” – a rare-disease area and clearly one of unmet and undeserved medical need! But the company is also working on skin cancer prevention and other interesting health issues.

And now, back to the Weekly.

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Dividends in kind – an overview

Everyone is aware of cash dividends. For me, it feels great to receive from time to time cash payments from companies that I own some shares of.

Usually, companies that are financially healthy and that generate enough cash flow – after investments – pay dividends to their shareholders. At best, these are means that cannot be used in a better way inside the business.

If a company can use cash to grow the business and achieve high returns on its investment, then it makes more sense not to pay a dividend.

Then you also have companies that want to reward their shareholders, but unfortunately are low on cash and due to different reasons somehow handicapped. What you can observe in such cases are dividends in kind in form of stock dividends that replace the regular cash payout.

This can be understood as a face-saving gesture without officially declaring a cut or suspension as there still remains a form of a distribution. However, a stock dividend is always dilutive to shareholders as new shares are created and put into circulation.

One such example that comes to my mind immediately is TotalEnergies (ISIN: FR0000120271, Ticker: TTE). During the oil price crash in 2020, the French energy super-major chose to pay a stock dividend to its shareholders in one quarter, as the balance sheet already had some debt and cash flow was under pressure.

I owned some stocks at that time myself and I remember that it was still possible to choose between a stock and a cash payout, however, the company asked its shareholders to take the stock payment.

Compared to its European rivals Shell (ISIN: GB00BP6MXD84, Ticker: SHEL) and BP (ISIN: GB0007980591, Ticker: BP), this way and thanks to their stronger balance sheet, TotalEnergies avoided a painful dividend cut.

The American competitor ExxonMobil (ISIN: US30231G1022, Ticker: XOM) for example heavily loaded up on new debt to sustain its dividend which wasn’t covered by cash flows, either, at that time.

I preferred the less risky approach of TotalEnergies at that time, however, ExxonMobil likely had the better result as shareholder dilution was avoided. Also, Exxon definitely had the higher price return from trough to peak.

You see, there are different ways to solve such a temporary challenge.

There are also companies that either always or most of the time offer their shareholders to choose freely between a cash or a stock dividend.

Such examples are Vodafone (ISIN: GB00BH4HKS39, Ticker: VOD) or Deutsche Telekom (ISIN: DE0005557508, Ticker: DTE) where at least in the past you could choose between both alternatives.

And then there are those companies that offer a special form of a dividend – as a bonus and in addition to regular cash dividends.

It is likewise called a dividend in kind.

However, the distribution differs from the examples above. Here’s a list of some companies that I stumbled upon which offer their shareholders a special reward and some form of a loyalty bonus (on top of the regular cash payout):

• Lindt & Sprüngli: A 4 kg chocolate box, as discussed in the intro section.
• Swiss company Calida (ISIN: CH0126639464, Ticker: CALN): Shareholders can chose to receive a pajama having a sales price of up to 80–90 CHF (depending on the model), if you own at least 20 shares. The interesting thing is, you can even let them send it home to you (at least here in Germany)!
• Again a Swiss company, Swatch (ISIN: CH0012255151, Ticker: UHR): A limited edition wrist watch, if you own at least one share.
• French beauty giant L’Oréal (ISIN: FR0000120321, Ticker: OR): Shareholders that are holding their position for an uninterrupted period of at least two years, are rewarded with a 10% extra dividend on their “regular” payout.
• LVMH (ISIN: FR0000121014, Ticker: MC), the French luxury conglomerate, offers its shareholders to be part of an exclusive shareholders club where you can receive varying amenities like an exclusive visit of the Moët & Chandon champagne basement; however, there are no discounts or free items to be given away.
• German car rental and leasing company Sixt (ISIN: DE0007231326, Ticker: SIX2) offers discounts for future rental services.
• Carnival Cruises (ISIN: GB0031215220, Ticker: CCL) the largest cruise operator and the only non-European I found (being American-British, headquartered in Florida) offers discounts, if you own at least 100 shares.

I could also find a few more exotic examples of rather small German companies where you even can receive free beer or a lifelong free entry into a zoo on your investment!

What you should be aware of is that in most cases it is not just buying some shares and waiting for the special distribution. Check each case individually, if you consider such investments and dividends!

Here are some requirements, but again, please check them individually:

In the case of the Lindt & Sprüngli chocolate box, you must go to the annual General Meeting. It can also be sent to the Swiss address of the shareholder, but for those living outside of Switzerland not interesting.

The wrist watch of Swatch can be shipped, however, only to a Swiss address. But it doesn’t have to be yours, a colleague is sufficient.

Calida pajamas can be send to your home, for example in Germany. However, you must be exclusively subscribed to the register of shareholders – this is something you can ask your bank to do for you (often for an additional fee). Otherwise the company doesn’t know you’re a shareholder.

And so on.

In the next section, let’s try to answer the question whether these dividends in kind are worth it.

Are these “special” dividends worth it?

First of all, there’s nothing wrong with receiving an additional amenity. Surely, barely anyone would complain about a small, free gift. But let’s have a look at some of the examples above case by case.

I’d like to start with the most obvious.

If you hold shares of L’Oréal, there’s a 10% bonus for holding your equity position for at least two years. But especially for those really long-term holders this already can make a huge difference.

Let’s assume your yield on cost is 8%. The current dividend is 6 EUR per share, meaning a purchase price of up to 75 EUR is needed. To have such a high and nearly incredible yield on your purchase price, you’d have to have bought the stock during the correction in 2011 or earlier (see the screenshot below).

But, it is not completely unrealistic!

Anyway, if the yield on cost is 8%, the loyalty bonus of 10% makes a cool 8.8% of it – without you having to do anything. You already did your job in this case. Just holding this stock.

In the case of the LVMH shareholders club membership, it seems for me to be rather an unnecessary feature for the average shareholder, except you really want to make use of the varying offers. At least I would not buy the stock for this reason (the valuation is another issue I have…)

The chocolate box from Lindt is more interesting, despite as said the necessity to attend the GM or having a Swiss address. The coffer’s list price, respectively what is in the coffer, is said to be around 300 CHF.

However, due to the two hurdles, namely a personal attendance and of course owning at least one share that costs nearly 110,000 CHF at the moment, this gift has some form of a goodwill due to being difficult to get a hand on.

As is clear, what is rare, often is more expensive.

This perfectly applies to the Lindt & Sprüngli chocolate box. I haven’t found any eBay auction myself, but I have read that these coffers can change hands for more than 3x the retail value (assuming it would be sold) or around 1,000 CHF.

Assuming you could sell it for 1,000 CHF, you could realize a 0.9% extra dividend yield in addition to the current 1.2%. All in all, however, not that overwhelming and more of a nice experience than monetary value-add.

If you are a regular user of certain companies’ services, it could make sense to own the minimally required amount of shares to have access to special shareholder’s conditions as in the case of Sixt or Carnival. 100 stocks of Carnival, as required, currently cost around 1,500 USD. For frequent cruise line users, it could make sense, especially as this company isn’t paying any cash dividend, so it is an advantage.

What I find the most interesting at the moment is Calida, the Swiss pajama (and other clothings) maker. However, I haven’t done so far any full research, hence, the following is to be understood as my first thoughts, not as a comprehensive analysis (which it isn’t). The only thing I quick-checked is that Calida has barely any net debt on its balance sheet.

If you meet all requirements and are registered as a shareholder, you just need to hold a minimum of 20 shares.

One such share currently only costs around 35 CHF. So a minimum investment of in total 700 CHF (plus of course order and the one-time registration fees) makes you eligible for the receipt of a pajama worth 70–80 CHF once a year.

Just a back the envelope calculation: This is a dividend yield of or even more than 10% already – 11.4% to be precise for the more expensive long-sleeve model. Not bad. Compared to the cash dividend of 1.15 CHF (yield of around 3%) this seems like a really great deal!

But now the question – is it really worth it?

Well, it depends. Let’s assume you need new pajamas. Then, you can collect the dividend in kind for four years (assuming it won’t be suspended) to have a full year’s collection of two long-sleeve and two short-sleeve examples.

If you also want to equip your partner and maybe kids, then the better.

Of course not everybody spends 70 or 80 CHF / EUR / USD on a pajama. But why not, if a full research on this company doesn’t show any red flags?

More stock does not qualify you for more pajamas!

What you should also keep in mind is that this example only works out well when you hold exactly 20 shares. 700 CHF is not that high an investment. The reason is, the more shares above 20 you own, the lower your dividend yield the pajama produces.

All in all, these additional benefit and gifts are rather to be understood as a loyalty bonus and incentive to hold the respective stocks. Likewise, it is a good marketing program. If happy shareholders tell their friends or colleagues about their “success” or special amenities, maybe they also get interested in stocks or products / services.

But I would always see these bonuses as – you guessed it – bonuses and not the main reason for an investment.

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The company pays only a small cash dividend and is not making any extraordinary gifts, but the case is not only pretty interesting from an investor’s perspective, but also from a societal one. After decades of hard work, management successfully commercialized its first product already years ago.

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Conclusion

Dividends in kind can not only be paid in stock, effectively replacing the cash dividend, but also as a bonus on top of it.

The former is rather a sign of current issues, while the latter is a nice additional reward for shareholders and a gesture of respect, but also an incentive and marketing program.

In some cases, it can make sense to buy stocks of such companies – if their add-ons fit your lifestyle and if you are willing to buy the stock anyway without these amenities.

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