First, I would like to thank the forum for all the information provided in different articles / discussions. It has helped me immensely in my investment planning.
My company offers an ESPP managed by Morgan Stanlely Smith Barney (MSSB) and I would like to seek the forum's help in evaluating the ESPP. I have checked other discussions on this forum related to ESPP and majority of members have recommended to max out individual contribution and sell as soon as possible. My company's ESPP is a bit different, so I would like to share my analysis and seek feedback.
Company contribution: 10% discount
on stock price as of purchase date
Purchase Date: 5th
of every month
Purchase frequency: Monthly
Maximum individual contribution: 15% of base pay
Sale of ESPP stocks: As per the plan document and my discussion with MSSB customer support, there is no minimum holding period
and I can sell the stocks as soon as they are credited to my account i.e. once the purchase is made on 5th of every month, I am assuming I can sell them in a week or so
Expenses: Company shall pay the service charges, brokerage, costs of mailing and other charges incurred in connection with the purchase of stocks. The cost of selling stocks shall be borne by me. The total cost of selling stocks is in the range of $25-$50
. MSSB customer support didn't provide information on how exactly the cost is determined, but confirmed that the selling cost will not exceed $50. A colleague was charged $26 for his recent transaction.
Monthly ESPP analysis:
Max contribution: $1250 ($625 per paycheck)
Stock Price: $100
Purchase Price (@10% discount): $90
No. of stocks purchased: 13.89
Company contribution: $139
To simplify the analysis, lets assume there is no change in stock price for a week
Sell Price: $100
$ Sales: $1389
Transaction charges: $25 (lower limit)
Short Term Capital Gain before tax: $114
Federal Tax @ 28% & Indiana State Tax @ 3.4%: (139+114) * (28% + 3.4%) ~ $79
(Tax Status: Resident alien...I love the terminology
)Net Profit: $35
and the XIRR is in triple digits.
This is assuming the minimum transaction charge of $25 and no change in stock price.
Given the above details, is it worth participating in my company's ESPP?
Thank you for your feedback / suggestions.