Despite some initial reservations I think the idea is much less of a gimmicky shareholder perk than it sounds. Firstly, it's not compulsory - shareholders wanting the cash dividend will still receive it. That means those investors who prefer to spend their money elsewhere, or better still reinvest dividends to enjoy the benefits of long-term compounding, can continue to do so. Helpfully, M&S also offers a dividend reinvestment programme, otherwise known as a Drip, making this very easy to do.
For those still interested in taking the cards, a few back-of-the-fag-packet calculations suggest the maths of the scheme work rather well for shareholders and M&S alike. What M&S is offering is that £900 of dividends can be exchanged for a gift card worth £1,000 to be spent in its stores. To receive an annual dividend payment worth £900 shareholders would need to own around 5,400 shares worth £27,000, based on last year's total payment of 17p a share. That's roughly double the average retail shareholding in M&S, if we assume that 190,000 shareholders own around a third of its shares.
So if an average holder will receive annual dividends worth £450, they'll receive £500 to spend in M&S if they make full use of the scheme. Based on the current share price, that would lift the effective yield from 3.4 per cent to 3.8 per cent - not bad compared with most bank accounts. Given that M&S shareholders are also likely to be M&S shoppers, and many of them are interested in giving their retirement income a boost, that's possibly a useful way of stretching their budget a little further. After all, the biggest cost pensioners face is their food bill - roughly £1,500 a year per household.
For M&S, meanwhile, the scheme creates a virtuous circle, keeping cash within its business. In the unlikely event that all 190,000 shareholders opt in and receive all of their dividends as giftcards, that's £85.5m of cash that doesn't need to be distributed, but even a much smaller take-up will bring a welcome cash boost. Of course, some of its distributions are already spent in its stores - but this makes sure of it.
There is one catch: the scheme is only available to those on its shareholder register, with paper certificates or Crest accounts. Once again, then, nominee shareholders are being short-changed, but not by M&S, which in trying to find innovative new ways to engage with shareholders should be applauded.
