Toyota (NYSE:TM) shareholders have voted to approve a new stock plan for the company that is intended to bring in higher numbers of long-term investors. The new plan required a two-thirds majority vote for approval. About 75 percent of shareholders voted in favor of the plan. Toyota is currently Japan’s biggest automaker.
Toyota designed the new shares to improve its ratio of long-term investors in the company. The new shares will be unlisted and must be held for five years before they can be sold back to Toyota at their issue price or converted into common stock. The company says that the new shares were needed to strengthen its commitment to long-term product planning.
The new shares will be named “Model AA,” after the company’s first passenger car. For the first year, the Model AA shares will have a fixed dividend of 0.5 percent. After that, the dividend will rise another 0.5 percent per year until maxing out at 2.5 percent in the fifth year. In Japan, the majority of the $14 trillion in financial assets held by individuals are held in cash deposits. These cash deposits currently earn almost nothing in interest.
In order to prevent the dilution of the company’s common stock, Toyota has promised to buy back the same number of shares that it issues. Toyota plans to eventually issue 150 million shares. That would be less than 5 percent of its shares outstanding. Individual investors currently account for roughly 10.5 percent of Toyota’s shares. The average for listed Japanese firms is around 20 percent.
A new corporate governance code in Japan encourages investors to voice their concerns about the companies that they hold shares in and forces those companies to at least consider their views. A number of foreign funds registered their opposition to the planned new stock class. Opposition to the plan highlighted the fact that the shares are currently only readily available to investors that reside in Japan. The foreign funds brought up the lack of easy access for foreign investors and hinted that voting for the proposal could result in less incentive for Toyota to maintain fiscal discipline.