Investments that offer non-cash rewards

We look at the firms which offer non-cash rewards to their shareholders.

From this July, Marks & Spencer shareholders can swap their cash dividends for gift cards offering a 10% discount in stores and online.

At first glance, this may seem like a gimmick, but it is actually a win-win for M&S and its individual owners. First, the high-street chain boosts its cash flow by not having to pay out cash dividends to private shareholders opting in. Second, loyal M&S owners can use their gift cards to enjoy a 10% discount, while recycling these payouts straight back into the business.

While M&S is the first FTSE 100 firm to offer non-cash dividends to its shareholders, a growing number of listed companies offer non-cash bonuses or rewards to encourage shareholders and bondholders to back these businesses with their spare cash. By boosting the non-cash returns from their shares or bonds, these companies can get away with paying smaller dividends, improving their cash flow.

Indeed, there are at least 40 UK-listed businesses that offer non-cash incentives to attract and retain shareholders. While the smallest sweeteners are worth only a few pounds, the biggest and best can save loyal shareholders hundreds of pounds every year.

Let's take at look at the non-cash sweeteners for shareholders of 10 well-known British businesses:

Company	Business	No. of shares needed	Rewards
Carnival	Cruise operator	100	An on-board credit of £30 to £150, depending on cruise duration
Greene King	Brewer and pub operator	100	Yearly discount vouchers for use in GK pubs and Loch Fyne restaurants
Merlin Entertainments	Theme-park operator	317	A 40% discount off the price of either two Adult or one Family Merlin Annual Pass (applies to parks including Legoland, Alton Towers and Thorpe Park)
Moss Bros	Clothing retailer	1	20% off any purchase
Mulberry	Fashion retailer	250	20% off up to £10,000 of purchases at certain stores in the UK, Paris and Amsterdam
N Brown	Home shopping	1	A 20% discount on mail-order purchases, subject to a maximum saving of £20 (1,000 shares), £40 (2,000), £200 (5,000) and a limit of £1,000 per year
Next	Clothing retailer	500	25% one-off discount voucher valid against most purchases
Restaurant Group	Restaurant operator	250	12 vouchers of 25% off food and drink for tables up to 10 people
Thorntons	Chocolate retailer	200	12 discount vouchers for use in Thorntons outlets in the UK and Ireland
Whitbread	Hotels, restaurants and coffee shops	64	A book of shareholder vouchers

Most of these shareholder rewards appear fairly straightforward, consisting of discounts, vouchers or credits to save money when spending.

However, many come with strings attached. You may need to own shares on a particular day of the year to qualify, so buying one day later could mean losing out for another year. Similarly, you may need to own shares for a qualifying period (up to a year) before these benefits kick in.

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Bonuses for bondholders

As well as rewards for shareholders, a growing number of UK companies are choosing to reward their bondholders with non-cash payouts.

With a traditional corporate bond, bondholders get regular cash 'coupons', usually paid once or twice a year. However, largely thanks to a boom in crowdfunding, more and more businesses are issuing bonds with non-cash coupons. Here are three we have covered previously:

1. Burrito Bonds

Mexican restaurant Chilango's Burrito Bonds pay a yearly coupon of 8%, but also come with two free burrito vouchers. Investors buying at least £10,000 of these mini-bonds get a Chilango Black Card, entitling them to a free burrito every week throughout the four-year life of their bond. Chilango raised over £2 million last August via this offer.

2. Racing rewards

In May 2013, the Jockey Club - the biggest name in British horse-racing - raised £24.7 million by issuing bonds paying interest of 4.75% a year. These bonds also came with a bonus of 3% in ‘Rewards4Racing Points’ for use against purchases at the Jockey Club’s 15 UK racecourses.

3. Chocolate coins

Last summer, Hotel Chocolat set out to raise £10 million by selling retail mini-bonds paying a yearly return of up to 7.33%. However, this entire return came in the form of Hotel Chocolat Cards or Tasting Club chocolate boxes, allowing bondholders to devour their delicious profits.

Show me the money!

One final word about non-cash rewards for shareholders and bondholders. While they can be a welcome bonus, never select shares or buy bonds purely for their perks. Your primary goal as an investor is to produce superior long-term returns, so first focus on capital gains and cash dividends.

Enjoy tax-free returns on your investments through a Stocks & Shares ISA

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