Editor’s Note: Please see our analysis of the latest news from our Dividend Champions in the Portfolio Update section following the article below.

Dual-class share structures are a hot topic these days, particularly here in Canada.

Driving the debate is Montreal-based Bombardier Inc. (TSX: BBD.A, BBD.B), which is negotiating with the federal government for a $1-billion bailout after its CSeries airliner ran way over budget and years behind schedule.

That’s where share structure comes in: The company’s class A shares have 10 votes each, while the B shares carry just one. The class A shares are 79.5% owned by the Bombardier family, descendants of company founder Joseph-Armand Bombardier, and the Beaudoin clan, relations of Bombardier’s son-in-law.

That hands these families 54% of the votes, even though they only hold a 13% economic interest. According to Bloomberg, the bailout talks deadlocked after Ottawa made ending this setup a condition.

The government’s position suggests multiple share classes are an inherently bad deal for investors. But are they? Let’s take a closer look.

Facebook Makes It Three

On the surface, having more than one share class seems like a good way for founders to look out for their own interests. (Company founders and/or their families often control multiple-share firms.)

At Facebook (NSDQ: FB), for example, founder and CEO Mark Zuckerberg controls 60% of the votes through his 468 million class B shares (10 votes each), which don’t trade publicly, and four million class A shares (one vote each), which trade under the FB symbol.

But that presented him with a unique problem: Last year, he and his wife, Priscilla Chan, promised to donate 99% of their Facebook shares to their philanthropic foundation, the Chan Zuckerberg Initiative, over their lifetimes, which would erode his control of the company.

So, on April 27, with a sparkling earnings report as the backdrop, Zuckerberg rolled out a plan to give shareholders a special dividend of two new class C shares for every class A and B share held. The new shares would trade under a different symbol than the class A shares and carry no voting power.

It’s essentially a three-for-one stock split that gives Zuckerberg a raft of new class C shares he can donate without putting his control in jeopardy.

One Among Many

Facebook and Bombardier are far from the only companies with more than one share class: According to The Globe and Mail, 12% of the firms on Canada’s S&P/TSX Composite Index use this structure, while 7% of S&P 500 firms do.

We don’t currently hold any dual-share companies in our Canadian Edge Dividend Champions Portfolio, but other Canadian examples include computer-outsourcing firm CGI Group (TSX: GIB.A, GIB.B) and convenience-store operator Alimentation Couche-Tard (TSX: ATD.A, ATD.B). In the U.S., Alphabet (Nasdaq: GOOG, GOOGL) adopted a multiple-class share structure back in 2012 that’s similar to what Facebook is proposing.

As for Zuckerberg, in the post-earnings call, he cited Facebook’s existing dual-class structure as a key part of its success to date:

“Early on, we received some generous offers from companies trying to buy Facebook, and our structure helped us resist that pressure,” he said.

“More recently, we navigated a challenging transition to mobile, but because we were a controlled company, we were able to focus on improving the user and product experience of our apps first, then build a strong mobile business over time, rather than being forced to do something shortsighted.”

Dual-Share Companies Outperform

The numbers suggest there’s something to the long-term view Zuckerberg says Facebook’s structure lets him take.

That’s because for every Bombardier—which has plunged more than 70% in the past five years as the CSeries lagged and its train business missed key deadlines—there are plenty of dual-share companies that outperform.

In fact, north of the border, dual-share firms have posted annualized returns of 12% in Canadian dollars over the past decade, compared to 7.1% for those with one class, according to Bloomberg. And U.S. firms with this structure have performed even better, returning 13% annualized, compared to 9.5% for the S&P 500.

Take the Long View

The takeaway? If there’s a talented founder-CEO at the helm with a compelling long-term vision, swapping some voting power to make sure they keep voting control may be a good deal for investors.

But keep in mind that one day this outsized sway will likely fall to the next generation, which could bring less drive and savvy to the table. That may be a good time to rethink your investment.

The Dividend Champions: Portfolio Update

By Deon Vernooy

Whistler Blackcomb Holdings Inc. (TSX: WB, OTC: WSBHF) delivered outstanding results for the first quarter (which includes the prime ski season), with a 43% year-over-year increase in earnings per share. Surprisingly, the dividend was left unchanged.

Revenues increased by 28% as visitor numbers jumped by 27%, thanks to above-average snowfall compared to poor snowfall last year. Operating expenses were well contained, resulting in a 30% rise in EBITDA (earnings before interest, taxation, depreciation and amortization).

Whistler remains highly dependent on snowfall to attract skiers during the peak season, but has recently announced a proposed C$345 million expansion plan to improve the all-season appeal of the resort. The plan is subject to approval from various regulators and consultations with First Nations groups and is not expected to make a contribution to income before 2019.

The balance sheet remains comfortably leveraged with a debt-to-capital ratio of 38%. Cash flow from operations jumped 65% over the past 6 months and comfortably covered maintenance capital and dividends.

The share price has declined by 9% over the past few weeks as the results were well anticipated by market participants. It will be interesting to see how the summer season develops, but all eyes are now on the next ski season. The stock currently yields 3.7%, and we estimate its fair value at C$26, or US$20.

InnVest REIT (TSX: INN-U, OTC: IVRVF) reported a fairly poor first quarter as good performances in Ontario and British Columbia were offset by weakness in regions hit hard by the energy crash, particularly in Alberta and Saskatchewan.

Funds from operations per unit (an estimate of operating cash flow) came in at -C$0.036, which was slightly worse than the same quarter last year. The distribution per unit was unchanged.

The leverage ratio (debt/gross asset value) increased to 62.3% as a result of the Ottawa Marriott acquisition during the first quarter. Management intends to bring the debt ratio below 60% by the end of the year as more non-core hotels are sold.

Shortly before the release of its quarterly results, InnVest announced that it had received an offer from Bluesky Hotels to acquire the REIT in an all-cash deal for C$7.25 per unit. This represents a 37% premium to the 30-day average price before the offer was made. The offer is supported by important shareholders, top management and the board.

Unitholders will vote on the deal at the annual meeting on June 28, and the offer needs the support of 66.6% to pass. Regulatory approvals are also required in accordance with the Invest Canada Act and the Competition Act. If all goes according to plan, the deal is expected to close by the third quarter.

In case of a higher offer, Bluesky will have the right to match the offer. Unitholders will continue to receive the monthly distribution until the deal closes.

The premium offered is rather substantial compared to our fair value estimate of C$6.30, or US$4.90. Although management has done a good job of enhancing the portfolio over the past two years, we think it’s unlikely that a better offer will emerge.

InnVest’s unit price has jumped on the news, and now trades only slightly below the offer price.

Given the substantial gain on our holding in the Dividend Champions Portfolio, we will probably sell our units to lock in gains of more than 50% after just nine months of holding the REIT. Investors who intend to hold their units through the deal’s close or time the sale of their units should note that the distribution is paid monthly, with the next ex-dividend date on May 27.

The full impact of the energy sector’s crash was once again evident in the quarterly results of pipe-coatings provider ShawCor Ltd. (TSX: SCL, OTC: SAWLF).

Despite management’s warnings that 2016 could be a very difficult year as oil and gas activity slow dramatically, it was still tough to stomach an 80% drop in earnings per share. However, the strong balance sheet and low payout ratio should ensure a stable dividend.

The outlook for the second quarter is even more challenging, with an order backlog (orders to be completed within 12 months) now down to $358 million, considerably lower than a year ago and also down compared to the previous quarter.

On a more positive note, management indicated that the company has firm outstanding bids of more than $2 billion, “a level unprecedented in [its] history.” Conclusion of the bidding activity on some large contracts is expected by the end of the third quarter.

The balance sheet remains in good shape, with the debt-to-capital ratio at 17%. The company’s conservative leverage profile has allowed it to take advantage of energy-sector dislocations by making selective acquisitions, while also repurchasing some of its more expensive debt.

Future profitability is highly dependent on oilfield project activity and the award of current contract bids, both of which are uncertain at present. The current outlook is rather dismal, but could change rapidly if ShawCor wins some large contracts.

The stock currently yields 2.1%, and we estimate its fair value at C$31, or US$24, though it should be noted that our estimate has a high degree of uncertainty.