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Just something I've always wondered. When companies announce a dividend, why don't they do it something like:
"For shares held 5 years or longer, the dividend is $1.00/share. For shares held 4 years, the dividend is $.90/share. For shares held 3 years, the dividend is $.80/share. For shares held 2 years, the dividend is $.70/share. For shares held over a year, the dividend is $.60/share. For shares held less than a year, the dividend is $.50/share."
?
That would really make people want to hold onto their older shares.
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What you propose is a little complicated for shares that jump around between brokerage accounts but I like the concept a lot. A bonus for holding shares 5 years sounds reasonable to me. It would cut down on volatility some.
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Hmm. I bet they could work out some special bonus dividend for long-held shares, but the way you've proposed it, the company would never know its quarterly dividend burden.
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(12-25-2021, 07:16 PM)Kerim Wrote: Hmm. I bet they could work out some special bonus dividend for long-held shares, but the way you've proposed it, the company would never know its quarterly dividend burden.
If we aren't holding paper certificates the company has no accurate info on who has held shares for decades. I even lose my cost basis info if I transfer long held shares. Sounds good but it just isn't happening under current system. It would be expensive drama. If you held shares long-term your YOC is low and that is your incentive.
(12-25-2021, 07:37 PM)fenders53 Wrote: (12-25-2021, 07:16 PM)Kerim Wrote: Hmm. I bet they could work out some special bonus dividend for long-held shares, but the way you've proposed it, the company would never know its quarterly dividend burden.
If we aren't holding paper certificates the company has no accurate info on who has held shares for decades. I even lose my cost basis info if I transfer long held shares. Sounds good but it just isn't happening under current system. It would be expensive drama. If you held shares long-term your YOC is low and that is your incentive.
Yup. I don't "own" my shares - Fidelity does. I know you can change that. It's not something I've ever worried about so I've never explored it. Another option would be a company offering a special as a "holding bonus" every so often based on length of ownership.
Problem is, how does this (or the original idea) benefit the company? I don't see a benefit to a company to reduce the frequency with which shares are traded. Maybe someone can point it out to me but as the market mostly goes up it would seem that high ADV would be good, not bad, for a company overall. Higher trading volume would certainly be a positive for execs and BOD members paid in stock options. And it seems as if it would be good for shareholders who are interested in capital gains.
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It we would benefit smaller companies with share price volatility far more. The ones that don't pay dividends.
crimsonghost747
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The reason they don't do this is that it would be illegal. (at least on this side of the pond) And quite frankly, unjust.
Shares dictate ownership of a company. Two people with the same amount of ownership need to have the exact same rights, and get the same amount of shareholder distributions.
You can just turn on your dividend reinvestment plan and you kind of get the desired effect. Some companies do offer a discount on the DRIP, which is their way of promoting long-term ownership.
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(12-26-2021, 11:07 AM)crimsonghost747 Wrote: The reason they don't do this is that it would be illegal. (at least on this side of the pond) And quite frankly, unjust.
Shares dictate ownership of a company. Two people with the same amount of ownership need to have the exact same rights, and get the same amount of shareholder distributions.
You can just turn on your dividend reinvestment plan and you kind of get the desired effect. Some companies do offer a discount on the DRIP, which is their way of promoting long-term ownership.
bingo!
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
Shares dictate ownership of a company. Two people with the same amount of ownership need to have the exact same rights, and get the same amount of shareholder distributions.
Is this correct? If I buy a stock as part of its IPO I will almost certainly have a lock-up period where I will be unable to sell shares - usually several months. But if I buy the stock on the first day it's publicly traded I can sell it tomorrow. I own shares, the IPO participant owns shares, those shares stipulate the same relative ownership of the company, but our rights are different.
So long as a company is clear about what it does why can't it make a stipulation regarding dividend eligibility?
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(12-28-2021, 07:34 AM)cemanuel Wrote: Shares dictate ownership of a company. Two people with the same amount of ownership need to have the exact same rights, and get the same amount of shareholder distributions.
Is this correct? If I buy a stock as part of its IPO I will almost certainly have a lock-up period where I will be unable to sell shares - usually several months. But if I buy the stock on the first day it's publicly traded I can sell it tomorrow. I own shares, the IPO participant owns shares, those shares stipulate the same relative ownership of the company, but our rights are different.
So long as a company is clear about what it does why can't it make a stipulation regarding dividend eligibility?
I think it might be possible, but if they didn't start over with a new share class it would be an administrative nightmare. I really don't trust they have perfect records going 50+ yrs back. Maybe I am wrong, but I sure wouldn't want to lose any paper stock certificates.
crimsonghost747
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(12-28-2021, 07:34 AM)cemanuel Wrote: Shares dictate ownership of a company. Two people with the same amount of ownership need to have the exact same rights, and get the same amount of shareholder distributions.
Is this correct? If I buy a stock as part of its IPO I will almost certainly have a lock-up period where I will be unable to sell shares - usually several months. But if I buy the stock on the first day it's publicly traded I can sell it tomorrow. I own shares, the IPO participant owns shares, those shares stipulate the same relative ownership of the company, but our rights are different.
So long as a company is clear about what it does why can't it make a stipulation regarding dividend eligibility?
As I said, I'm not sure if the rules are different on your side of the pond. I know that (at least in some countries) over here in Europe the law clearly states that all shareholders need to be treated equally. There are some ways around this, most commonly used is having different share classes. But you can't just suddenly decide that some holders of share class A are entitled to different distributions than others. I believe this is also done in the US, since I've often seen different classes of preferred shares with different dividend rates etc.
Now I have no idea how those IPO lock-up things work. Could it be an opt-in thing? So the directors of the company etc sign a legally binding agreement stating they won't sell until X date?
Now I have no idea how those IPO lock-up things work. Could it be an opt-in thing? So the directors of the company etc sign a legally binding agreement stating they won't sell until X date?
I've never bought at IPO time but I have received offers. You don't have to be a director to buy, just shell out a large enough chunk of cash. And you can't sell those shares (usually) for a period stipulated in the IPO offer. I've never seen a form, just a document detailing the offer which you agree to the terms of by buying, just like whenever I click "buy" in Fidelity I'm agreeing to their terms.
I just don't know what would prevent a company announcing a graduated dividend policy as the OP suggested. Tracking it would be a nightmare, especially in these days where most shares are technically owned by the brokerage and not held in name. But I don't see why they would be prevented from doing so either so long as proper notice was given.
I don't see it being in the interest of a company to do it anyway. Why should they care how long shares are held?
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