(BFM Bourse) – On the stock market, the spring period is also synonymous with dividend season. All companies do not try to exercise due to lack of funds, due to an uncertain financial situation or simply due to choice. For those willing or able, companies have more leverage to attract or retain investors.
After a record high in 2022, global companies continued to be generous to their shareholders in the first quarter of 2023. More than $300 billion, exactly $326.7 billion, was paid out to shareholders across the globe between January and March, according to a report by asset manager Janus Henderson published at the end of 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 pocketed more, paying extraordinary dividends totaling $28.8 billion in the first quarter, “their second-highest level ever” (after the first quarter of 2014), according to Janus Henderson. Ford and Volkswagen accounted for nearly a third of these extraordinary dividends.
This week, Rémy Cointreau announced that it is submitting to its general meeting the payment of an extraordinary dividend of 1 euro, in addition to an ordinary dividend of 2 euros per share. The spirits giant intends to reward its shareholders’ loyalty after “very good” results achieved in 2022-2023.
As the name suggests, an extraordinary dividend consists of a one-time payment to the shareholders of a company. It should not be confused with ordinary dividends, which are paid periodically. By their nature, they are often triggered by specific events, such as extraordinary earnings, the sale of large assets or extraordinary gains, recalls Julia Bridger, partner at EuroLand Corporate.
To illustrate her remarks, she cites the example of Sword Group, which paid an extraordinary dividend of 10 euros in 2022, thus offering a return close to 25%. The digital services specialist group wanted to take care of its shareholders with part of the funds from the sale of its GRC (corporate governance, compliance and risk management software) business to a US industrialist.
This extraordinary dividend is awarded to all shareholders regardless of the method of holding the share (registered or bearer), and the amount of the distribution is not limited, recalls Julia Bridger.
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Bonus dividends: a regulated system
To attract and retain investors, publicly traded companies have an arsenal of loyalty levers. In addition to the extraordinary coupons, they can award their shareholders increased dividends. This time, the company cannot proceed as it wishes, as the practice is regulated by law.
In order to consider implementing a bonus dividend distribution, Julia Bridger reminds that the company must first adopt a resolution to this effect at an extraordinary general meeting and amend the articles of association after this vote.
And at the end of a period of two years after the amendment of its statutes, the company will have the option (but not the obligation) to distribute an increased dividend to shareholders registered in pure name or managed 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 entitled to the increase may not exceed 0.5% of the capital for the same shareholder, whereas this ceiling does not exist on markets such as Euronext Growth”, the specialist clarifies. This small bonus thus mainly rewards small shareholders on the regulated markets, while this one concerns all shareholders on the Euronext Growth and Access markets.
Companies listed on the Euronext Growth and Access divisions 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 medium-sized companies. Poultry producer LDLC voted on the possibility of paying a bonus dividend at its AGM on 30 September 2022. The first bonus dividend could be awarded in 2025 for the financial year ending 31 March 2025.
“Regular, increased or extraordinary dividend, the yield 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 yield 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 size of the dividend compared to the current stock market price – that is too attractive. Behind this abundant proposal may hide a problem or important doubt.
Ideally, a good return value investment should therefore combine a reasonable distribution rate, a comfortable but not abnormally high return, and above all be accompanied by solid operating prospects for the coming years.
Over time, investing in fairly solid companies is still the easiest way to get rich in the stock market, and a regular ability to pay a dividend is and will be one of the best indicators of financial performance. The dividend “aristocrat club” refers to those companies that are able to deliver profitable growth over the long term. In this sense, these values are often appreciated by investors, even more so by those whose investment horizon is long.
In Paris this club has shrunk, while in New York it is relatively large. It still hosts no fewer than 68 S&P 500 companies in May, according to data compiled by Sure Dividend.
Sabrina Sadgui – ©2023 BFM Bourse