With Co.Co. you get a full return on your investment plus 10%. Where else can you find a company like that?

 

Many of the new partners who joined recently wanted to know when dividends are distributed. Is the company profitable, they ask, do you plan on profit distribution?

The answer is yes! Sure!

What are dividends? When a company grows to be more profitable its cash flow increases as well. That means that more money is left after spending and there is surplus to finance the next year activity. In an ideal world, in a situation such as this, many companies decide not to keep the money or re-invest it into the company but rather allocate some of the surplus to the shareholders. This amount is called dividend. In Israel, the average dividend return in public companies was 3% in 2013. Therefore, if your share in the average (imaginary) company worthies 3,000 NIS then the dividend you receive at the end of the year totals 90 NIS.

So we do have a plan but before I go into details I have a story from 10 years ago when I was part of IDB pyramid as marketing vice-president in Polgat Textiles. Polgat Textiles was a subsidiary of Clal Industries, a subsidiary of IDB. Simple, isn’t it? Like a great granddaughter to her great grandmother. This manufacturer of fine wool fabrics who paid my salary faced a complicated situation when customers left, bank debts increased and investments in vital equipment were rejected. The Chinese industry blossomed, men started to realized that wool suits and neckties were not a necessity in order to be treated seriously and Polgat learned that Chinese prices beat out any quality and tradition.

To beat the Chinese dragon in favor of 500 employees from Kiryat Gat, highly motivated designers and marketing people were set on the world markets in order to obtain any possible order, just to keep the machines rolling.
That laborious year ended with a nice bulk of contracts that promised good results. At the board meeting held in Clal Industries I was proud and confident (very naïve also I might say) to present the results and the forecast. The Clal chairman (the great grandmother company) responded by asking: “so, will we distribute dividends this year?”

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Some phrases are etched in your heart and the person who said them is not even aware of their impact. At that moment I first understood the meaning of dividends. Until then I thought like everybody else that profit distribution indicates the capability of a company to maintain its activities while growing and earning profits. The surplus money which is not used for regular operation returns to the shareholders as dividends. This is how it used to be.

That day I became familiar with the dark side of dividends. The side supposed to minimize the personal debts of the shareholders or to make them richer but has nothing to do whatsoever with the company’s future of the employees’ welfare besides one general manager and two deputies.

Since the dividends have been introduced, businessmen realized that walking through Via Dolorosa until the desired profits are distributed is useless. It’s easier to first take a bank loan, to take over a company with nice cash, distribute the cash as dividends, return their personal loan and everything will turn out fine. If it happens and there is no money left for regular operation the company will raise money from the public or take a bank loan. This is simple when interest rate is minimal but if things start to get complicated the money will not be returned or the company will face slump or liquidation. These private businessmen are already all set. They can move forward.

Founding Co.Co we decided to raise money from the public while being obliged to act as a public company although the crowd funding law is still in the pipe. What does it mean? Maintain transparency according to the values and articles we believe in, and handle the money we raised with extra care. We use the money for current operation that has doubled in the second year. As we have all intentions to keep up this pace we don’t rush into paying dividends. On the contrary, we are pleased that the debts shrink and we enjoy a positive cash flow so we have no need at this point for any loan or credit line with impossible interest rate. The only debts we have are the shareholders loan and the investment made by the founders which is returned bit by bit thanks to the purchasing. We expect that in 2015 half of the partners will get full return on their investment plus 10% discount.

So if you invested in 2013 3,000 NIS in a public (imaginary) company and got 90-NIS dividends, in 20 or 30 years you’ll get your investment in full. Whoever invested 3,000 NIS in Co.Co in 2014 will receive as early as January 2015 3,300 NIS worth of products which is the entire amount plus 10% return. So yes, we could have decided that we find a legal and crooked way to pay quick dividends. But as long as we keep on growing which is better? 90 NIS a year or 300 NIS in style and a wide variety of new products and designers?

As long as we have vision, future and projects we invest into the company. Until we have surplus to be paid out, let the jurists and lawyers consider how a crowd of hundreds of women can create a company and get a 90-NIS dividend a year. Until then, IDB, secondhand company, is on the way to raise money or face liquidation and Clal Industries plans on receiving a huge 2-billion NIS loan from the bank (that is from us, the public…)

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