RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Ditch the TSX Stocks of Canadian companies with dual-class share structures have outperformed those with single-class shares over the past two decades, according to analysts at the Canadian Imperial Bank of Commerce.
A new report titled The Evils and Virtues of Dual Class Share Structures shows that such arrangements, in which some shareholders have less say in company matters than others, regardless of the economic size of their stakes, have greater potential to generate investor returns, despite possible threats to corporate governance.
“Generally, we are opposed to the use of unequal voting rights across share classes. However, the relative outperformance of Canadian DCS equities over the last 20 years suggests there are instances where unequal voting can unlock superior long-term returns for all shareholders,” the analysts wrote. The report comes from CIBC’s portfolio strategy group, which includes analysts Shaz Merwat, Ian de Verteuil, Jin Yan and associate Jinzhu Zhai.
As the chart shows, a dual-class share portfolio was up 513 per cent from 2002 onward compared with the S&P/TSX Composite Index’s gain of 390 per cent.
The largest contributors to outperformance included dual-class share companies Brookfield Corp.
, which was up 2,202 per cent over the measurement period, Shopify Inc.
(466 per cent), Alimentation Couche-Tard Inc.
(5,070 per cent), CGI Inc.
(1,001 per cent) and Teck Resources Ltd.
(1,117 per cent). CIBC weighted companies by market capitalization, meaning a big company with a high return contributed more to outperformance than a smaller company with a huge return.
The dual-class portfolio came out on top, even though it didn’t include some of Canada’s high performers with a single-class share structure, such as Royal Bank of Canada
(up 955 per cent), Canadian Natural Resources
(2,819 per cent),
(1,612 per cent), Toronto-Dominion Bank
(792 per cent) and Canadian Pacific Kansas City
(2,081 per cent).