Market: Exceptional, ordinary, increased… Dividends, a stock market loyalty tool

(BFM Bourse) – On the stock market, the spring period is also synonymous with dividend season. All companies do not try to exercise for lack of means, because of a precarious financial situation or quite simply by choice. For those who want or can, companies have several levers to attract or retain investors.

After a record high in 2022, global companies continued to be generous with their shareholders in the first quarter of 2023. More than 300 billion dollars, 326.7 billion exactly, were paid out to shareholders across the globe between January and March , according to a report by asset manager Janus Henderson published in late May. Companies in the automotive sector, banks and oil producers did not fail to reward their shareholders in the first three months of 2023.

And some companies put more into their pockets and paid extraordinary dividends totaling $28.8 billion in the first quarter, “their second highest level ever” (after the first quarter 2014), according to Janus Henderson. Ford and Volkswagen accounted for almost a third of these extraordinary dividends.

This week, Rémy Cointreau announced that it is submitting to its general meeting the payment of an exceptional dividend of 1 euro, in addition to an ordinary dividend of 2 euros per share. The spirits giant intends to reward the loyalty of its shareholders after “very good” results achieved in 2022-2023.

As its name suggests, an exceptional dividend consists of a one-time, non-recurring payment to the shareholders of a company. It should not be confused with ordinary dividends which are paid periodically. By nature, they are often triggered by specific events, such as exceptional profits, the sale of large assets or exceptional gains, recalls Julia Bridger, partner at EuroLand Corporate.

To illustrate her remarks, she cites the example of Sword Group which paid an exceptional dividend of 10 euros in 2022, thus offering a yield close to 25%. The group specializing in digital services wanted to take care of its shareholders, with part of the funds from the sale of its GRC activity (corporate governance, compliance and risk management software) to an American industrialist.

This exceptional dividend is allocated to all shareholders regardless of the method of holding the share (registered or bearer) and the amount of the distribution is not capped, recalls Julia Bridger.

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Bonus dividends: a regulated system

To attract and retain investors, listed companies have an arsenal of loyalty levers. In addition to the exceptional coupons, they can allocate to their shareholders increased dividends. This time, the company cannot proceed as it pleases, the practice being regulated by law.

To be able to consider carrying out a bonus dividend distribution, Julia Bridger recalls that the company must first pass a resolution to this effect at an extraordinary general meeting and modify its articles of association after this vote.

And at the end of a period of two years following the modification of its articles of association, the company will have the possibility (but not the obligation) to distribute an increased dividend to shareholders registered in pure registered form or administered for at least two years. This dividend increase may not exceed 10% of the gross amount of the dividend paid.

“On the regulated markets, the number of shares eligible for the increase cannot exceed 0.5% of the capital for the same shareholder, whereas this ceiling does not exist on markets such as Euronext Growth”, specifies the specialist. Thus, this small bonus mainly rewards small shareholders on the regulated markets, while this concerns all shareholders on the Euronext Growth and Access markets.

Companies listed on the Euronext Growth and Access compartments therefore have an interest in using this leverage to retain their shareholders and attract new ones. But for now, the practice is confidential among small and mid caps. Poultry producer LDLC voted on the possibility of distributing a bonus dividend at its general meeting of September 30, 2022. The first bonus dividend could be allocated in 2025 for the financial year ended March 31, 2025.

“Regular, increased or exceptional dividend, the return offered by a listed company is an important element in the life of the listed stock market and makes it possible to attract and retain investors thanks to the return offered”, concludes the specialist.

The “dividend aristocrats” club

But remember that the most profitable company cannot offer more than it earns – at least not permanently. The investor should be wary of a yield – which is the amount of the dividend compared to the current stock market price – that is too attractive. Behind this copious proposal can hide a problem or important doubts.

Ideally, a good investment in yield value must therefore combine a reasonable distribution rate, a comfortable but not abnormally high rate of return, and above all be accompanied by solid operational prospects for the years to come.

Over time, investing in fairly solid companies is still the easiest way to get rich on the stock market and a regular ability to pay a dividend is and will remain one of the best indicators of financial performance. The dividend “aristocrats club” refers to those companies that are able to deliver profitable growth over the long term. In this sense, these values ​​are often prized by investors, even more so by those whose investment horizon is long.

In Paris, this club has shrunk to a trickle while in New York it remains relatively large. It still hosts no fewer than 68 S&P 500 companies as of May, according to data compiled by Sure Dividend.

Sabrina Sadgui – ©2023 BFM Bourse

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