Although most dividends are paid in cash, companies are free to provide their shareholders with any type of dividend they want, including shares of stock or dividends in kind. Although the people on Wall Street often behave like they are a bunch of drunks, that doesn’t mean they are drinking, or that the companies they have ownership in are giving away free liquor, but we have found three cases where that did happen. Two of these, by National Distillers Product Corp. and Park and Tilford, have been covered in other blogs.
Whiskey Dividends
On October 15, 1933, shareholders of the National Distillers Product Corp. received a warehouse receipt for 24 pints of 16-year-old whiskey for every 5 shares of stock they owned. The whiskey had sat in a warehouse during Prohibition and with the 21st Amendment repealing Prohibition, the company celebrated by distributing their aged whiskey to shareholders. National Distillers stock rocketed up from 19 at the beginning of 1933 to 111.25 in September 1933 and shareholders not only got free whiskey, but benefited from the dramatic increase in the stock price as well. When the United States entered World War II, the government put a prohibition on the production of whiskey and similar liquors so the alcohol could be used for the production of ammunition and synthetic rubber which could no longer be imported from Japanese occupied Asia. In 1943, this prohibition was lifted and two companies rewarded their shareholders with whiskey they had been ageing in their warehouses. In December 1943, Park and Tilford announced that they were providing shareholders with the right to buy six cases of whiskey at a reduced price. Since the country was fighting World War II and all prices were regulated, the government stepped in to spoil the fun. The Office of Price Administration limited the negotiability of the whiskey purchase rights and the maximum profit on the resale of the liquor. Nevertheless, the price of Park and Tilford stock ran up from 57.625 in December 1943 to 98.25 on May 26, 1944. Park and Tilford took advantage of this increase in the price to sell shares to customers of Ira Haupt & Co. The brokerage unloaded such a large block of shares that the SEC treated the sale as a secondary offering and suspended Ira Haupt & Co.’s membership in the NASD for 20 days for not marketing the shares as such. The third company that distributed whiskey to their shareholders was the Tom Moore Distillery which provided shareholders with 27 original proof gallons of Kentucky bourbon whiskey for each share that they held.Whiskey for Tom Moore
Thomas Selvin Moore was born on March 18, 1853. His family emigrated from Ireland to begin a new life in Kentucky in the 1840s. Tom began working at John D. Willett’s distillery in 1874 and in 1876 Tom Moore and Ben Mattingly began operating Willett’s distillery on their own and changed its name to the Mattingly and Moore Distillery. The distillery was sold to outside investors in 1881, but Moore stayed on to help operate it. In 1899, Moore struck out on his own and purchased 116 acres of land outside of Bardstown at Morton’s Spring in Kentucky to build his own distillery. Initially, Moore was able to mash 100 bushels of wheat daily generating 10 barrels of whiskey. The distillery produced “Tom Moore” “Dan’l Boone” and “Silas Jones” whiskeys. By 1905, the distillery was mashing 300 bushels a day and the warehouses had a capacity of 20,000 barrels. A good wheat bourbon needs to age 12 years or more to reach the right flavor. In 1916, Moore repurchased the distillery he had worked at in Morton’s Spring to expand his production to meet the national demand for his whiskey.
Moore managed his distillery until 1919 when Prohibition was passed and Moore retired. When Prohibition was repealed in 1933, Moore’s son, Con joined with several partners to reopen and expand the distillery so it could age 50,000 barrels. The company continued to operate the distillery until 1944 when Barton Brands bought the company. The distillery was purchased by Sazerac in 2009, and the distillery was renamed the Barton 1792 Distillery. Tom Moore died in 1937 and in 2007, Tom Moore was voted into the Kentucky Bourbon Hall of Fame.
You can still visit the Barton 1792 Brewery in Bardstown, Kentucky, and after the two-hour tour, you can buy souvenirs and get your picture taken in front of the World’s Largest Bourbon Barrel which is over 15 feet tall. That would be enough bourbon to last me a lifetime!
Whiskey for the War
Few people today realize the impact World War II had on the production of whiskey. During the war, alcohol was needed to make ammunition but more importantly it was needed to make synthetic rubber. The source of natural rubber had been cut off by the Japanese expansion in the South Pacific. The distilleries went on war time Prohibition and were not allowed to make beverage alcohol. They had to produce high proof neutral spirits to produce these two main supplies for the war. Alcohol was used for many other necessary items such as anti-freeze, antiseptic and other medical needs as well. There was a brief lifting of the Prohibition in 1943 as stocks off alcohol reached a level that allowed for beverage production. Still there were changes made as barrel size was increased to 53 gallons and the hoops on the barrel were reduced in number from eight to six. This was done to save on wood and iron for the war effort. Glass was also saved as the bottle size of 4/5 quart became the recommended size instead of the quart. Grain was rationed to meet the needs of war production but there was no excess for beverage production as excess grain was needed to feed cattle to feed the troops. Consumers saw a shortage of spirits in the market. Aged products were often stretched by blending them with neutral spirits. Whiskey was available but straight whiskey was much more expensive.Whiskey for the Shareholders
On November 8, 1943, holders of Tom Moore Distillery Co. stock were issued dividend certificates for 27 original proof gallons of Kentucky bourbon whiskey. Originally, the distribution was scheduled for payment on December 1, 1943 to holders of record on November 26, 1943, but an injunction issued in the Detroit Circuit Court restrained the company temporarily from issuing the certificates. The record date was changed to December 16, and payment was made on December 21, 1943. The company issued dividend certificates which entitled stockholders to obtain barrels of whisky, equal to 53 gallons to the barrel, according to the number of shares they owned. A second certificate was issued for the gallonage not included in the warehouse receipts. Someone who owned 100 shares of stock received 2700 gallons of whiskey. This was equivalent about 51 barrels of whiskey. The certificates allowed holders to withdraw from the company’s bonded warehouse in accordance with federal and states laws and regulations. Of course, the government had to intervene, and the Office of Price Administration estimated that the 27 gallons of whiskey were valued at $31.59 or $1.17 per gallon. Those were the days! Someone who owned 100 shares of stock received whiskey the government valued at $3,159 and shareholders had to pay taxes on that amount. But this gave the shareholders something to complain out when they got drunk. Not only did shareholders receive a whiskey dividend, but the stock price responded as well. In December 1942, the company did a one-for-twenty-five reverse split reducing the number of outstanding shares from 500,000 to 20,000. This means that the company gave away 540,000 gallons, or about 10,000 barrels, of Kentucky bourbon whiskey to its shareholders.
S&P Global and MSCI are making some major changes in the GICS sectors which will be enacted at the end of September. Under the old GICS, Telecommunications was one of the 11 GICS sectors which included primarily telephone companies. S&P Global and MSCI are changing the Telecommunications Sector to the Communications sector which includes not only Telecommunication Services, but Media and Entertainment stocks, which includes Advertising, Broadcasting, Cable & Satellite, Publishing, Movies and Entertainment, Interactive Home Entertainment and Interactive Media Services.
The most significant impact of these changes is that two companies that formerly were part of the Information Technology sector, Alphabet and Facebook, will be moved over to the Communications sector while Amazon has become part of the Consumer Discretionary sector since it is classified in the Internet & Direct Marketing Retail sub-industry. Although this leaves Apple and Microsoft in the Information Technology sector, this change has dramatically reduced the size of the Information Technology sector in the GICS. At the end of August 2018, the Information Technology sector represented 26% of the market cap of the S&P 500 while Telecommunications represented only 2%. These changes have turned the conservative, high-yielding Telecommunications sector into the high growth, low-yielding Communications sector. This reorganization of the GICS sector will balance out the two sectors by market cap more evenly.
This raises the questions, however, as to how the Media & Entertainment market cap of the new Communications sector has grown over time. Global Financial Data has data on the American stock market going back to 1791 and has classified all of the stocks traded on American exchanges over the past 225 years by GICS and sector. We have been able to calculate how the Media & Entertainment stocks have grown within the Communications sector over the past 150 years. The graph below illustrates these changes.
With Jack Ma predicting that the trade wars between the United States and China could go on for another 20 years, Global Financial Data has added data on tariffs so our customers can analyze tariffs between countries and over time. With Donald Trump using tariffs as his primary weapon in his global trade wars, it is important to understand what tariff rates are throughout the world.
GFD has collected data from the World Bank covering over 2800 series on tariffs from every country in the world. The data include tariff rates for primary products, manufactured products and all products. It includes data on both the average tariff rates for countries as well as the most favored nation rates. The data begins in 1988 and extends up to 2016.
GFD has also collected data on U.S. tariffs going back to 1790 as the chart below shows.
The Vereenigde Oost-Indische Compagnie (VOC), or the United East India Company, was not only the first multinational corporation to exist, but also probably the largest corporation in size in history. The company existed for almost 200 years, from its founding in 1602, when the States-General of the Netherlands granted it a 21-year monopoly over Dutch operations in Asia, until its demise in 1796. During those two centuries, the VOC sent almost a million people to Asia, more than the rest of Europe combined. It commanded almost 5,000 ships and enjoyed huge profits from its spice trade. The VOC was larger than some countries. In part, because of the VOC, Amsterdam remained the financial center of capitalism for two centuries. Not only did the VOC transform the world, but it transformed financial markets as well.
The United East India Company Takes Over Asian Trade
The foundations of the VOC were laid when the Dutch began to challenge the Portuguese monopoly in East Asia in the 1590s. These ventures were quite successful. Some ships returned a 400 percent profit, and investors wanted more. Before the establishment of the VOC in 1602, individual ships were funded by merchants as limited partnerships that ceased to exist when the ships returned. Merchants would invest in several ships at a time so that if one failed to return, they weren’t wiped out. The establishment of the VOC allowed hundreds of ships to be funded simultaneously by hundreds of investors to minimize risk. The English founded the East India Company in 1600, and the Dutch followed in 1602 by founding the Vereenigde Oost-Indische Compagnie. The charter of the new company empowered it to build forts, maintain armies, and conclude treaties with Asian rulers. The VOC was the original military-industrial complex. The VOC quickly spread throughout Asia. Not only did the VOC establish itself in Jakarta and the rest of the Dutch East Indies (now Indonesia), but it established itself in Japan, being the only foreign company allowed to trade in Japan. The company traded along the Malabar Coast in India, removing the Portuguese, traded in Sri Lanka, at the Cape of Good Hope in South Africa, and throughout Asia. The company was highly successful until the 1670s when the VOC lost its post in Taiwan and faced more competition from the English and other colonial powers. Profits continued, but the VOC had to switch to traded goods with lower margins. They were able to do this because interest rates had fallen during the 1600s.
The chart below shows how the VOC’s revenue increased over time. Revenues were around 7.5 Million Guilders between 1650 and 1680 (about $3 million), increased to around 20 million Guilders (about $8 million) around 1720 and stayed at that level until 1780.
Lower interest rates enabled the VOC to finance more trade through debt. The company paid high dividends, sometimes funded through borrowing, which reduced the amount of capital that was reinvested. Given the high level of overhead it took to maintain the VOC outposts throughout Asia, the borrowing and lack of capital ultimately undermined the VOC and led to its demise. Nevertheless, until the 1780s, the VOC remained a huge multinational corporation that stretched throughout Asia.
The Fourth Anglo-Dutch War of 1780–1784 left the company a financial wreck. The French Revolution began in 1789, leading to the occupation of Amsterdam in 1795. The VOC was nationalized on March 1, 1796, by the new Batavian Republic, and its charter was allowed to expire on December 31, 1799. Most of the VOC’s Asian possessions were ceded to the British after the Napoleonic Wars, and the English East India Company took over the VOC’s infrastructure.
The VOC Provides Innovations in Finance
The VOC transformed financial capitalism forever in ways few people understand. Although shares had been issued in corporations before the VOC was founded, the VOC introduced limited liability for its shareholders, which enabled the firm to fund large-scale operations. Limited liability was needed since the collapse of the company would have destroyed even the largest investor in the company, much less small investors. Although this innovation changed capitalism forever, there were ways in which the VOC failed to transform itself, which led to its downfall. The company’s capital remained virtually the same during its 200-year existence, staying around 6.4 million florins (about $2.3 million). Instead of issuing new shares to raise additional capital, the company relied on reinvested capital. The VOC’s dividend policy left little capital for reinvestment, so the company turned to debt. The company first issued debt in the 1630s, increasing its debt/equity ratio to two. The ratio stayed at two until the 1730s, rising to around four in the 1760s, then increased dramatically in the 1780s to around eighteen, ultimately bankrupting the company, and leading to its nationalization and demise.
Dutch East India Stock Dividend Yield, 1650 to 1795
As the chart below shows, shares started at 100 in 1602, moved up to 200 by 1607, suffered a bear raid in 1609, moved up to the 400 range in the 1630s, fluctuated as the fortune of the company changed from year to year, participated in the bubble of the 1720s when shares exceeded 1,000, fell back to 600, rallied to 800 in the 1730s, then slowly declined from there. Perhaps no better indicator of the Dutch economy, or the global economy, prior to 1800 exists.
The Impact on the Amsterdam Stock Exchange
The VOC also transformed the Amsterdam Stock Exchange, causing a number of innovations to be introduced, such as futures contracts, options, short selling, and even the first bear raid. Isaac le Maire was the largest shareholder of the VOC in its early years, and he initiated the first bear raid in stock history, selling shares of VOC short in order to buy them back at a profit. These actions also led to the first government regulation of stock markets, attempting to ban short selling in 1621, 1623, 1624, 1630, and 1632, as well as banning options and other forms of financial wizardry. The fact that these laws had to be passed so many times shows that these regulations were not that effective. One problem for the long-term success of the Amsterdam Stock Exchange was that the VOC and the West Indies Company (WIC) were the only shares of importance that traded on the Amsterdam Stock Exchange. Between 1600 and 1800, no new large companies listed in Amsterdam. Although Dutch fiscal rectitude kept debt and interest rates low, it also helped stifle the growth of the Amsterdam Stock Exchange because government bonds never became a prominent part of the trading on the exchange. Due to the decentralized political nature of the Netherlands, government debt was held locally. There was no large centralized national debt as in France and England, and ultimately, this inhibited the growth of the Amsterdam Stock Exchange. The Netherlands was as decentralized as France was centralized. Because the VOC and WIC so dominated the share market, the company didn’t issue new shares to raise capital. Dutch debt was so small and diversified among its cities that the Dutch invested in foreign debt to find an outlet for their capital. Dutch newspapers of the 1700s often listed the prices of French debt in Paris as well as British Consols, Bank of England stock, the British East India Company and South Sea Company stock in London, but no other debt or equity from Amsterdam was listed. With the exception of colonial trade, until the 1800s no capitalist enterprise required the levels of capital of the VOC and WIC. So the Dutch capital that was available went into debt, not equity. America went to Amsterdam to raise capital, as did Sweden, France, England, Russia, Saxony, Denmark, Austria, and other countries. This provided Dutch investors with higher returns, but didn’t develop the Dutch economy in the way it could have. Unfortunately, the profitability of the Dutch East India Company was highly erratic as the chart below shows (there were 2.5 Guilder to 1 U.S. Dollar). Although there were many years when the VOC was profitable, there were also numerous years when the company lost money, and yet it still paid a dividend in most years, draining the capital of the company and forcing the VOC to take on more and more debt. The death knell of the company came in the 1770s and 1780s when the Fourth Anglo-Dutch War of 1780-1784 devastated the company’s finance. The company never recovered and it suffered losses for the rest of its life. The Netherlands were conquered by the French during the Napoleonic Wars and the company’s assets were seized by the British. The VOC ceased to exist in 1796.
