20. Write a note on dividends and bonus shares.
Dividends and bonus shares are two ways a company rewards its investors using its profits. A dividend is a direct cash payout to shareholders. Bonus shares are extra, free shares given to existing investors to increase their total holdings. [1, 2, 3]
Dividends
A dividend is a portion of a company's earnings paid out to its owners (shareholders).
- How it works: It is usually paid as cash per share. For example, if a company pays a $2 dividend per share, an investor with 100 shares gets $200.
- The Goal: It gives investors a steady, real-world return on their investment.
- Impact: The company's cash balance goes down.
- Eligibility: You must own the stock before the "ex-dividend date" (the cut-off date to get the reward) to receive the payment. [5, 6, 7, 8]
Bonus Shares
Bonus shares are additional stock given to current investors for free.
- How it works: They are issued in a ratio based on shares you already own. For example, in a 2:1 bonus issue, you get 2 free shares for every 1 share you already own.
- The Goal: Companies use this when they want to reward shareholders but also need to save their cash to grow the business.
- Impact: The total number of shares increases, but the overall value of your investment stays the same.
- Simple Analogy: Think of a pizza. A dividend is giving away slices of the pizza to eat. Bonus shares are cutting the same pizza into more slices. You have more slices, but the total amount of pizza remains identical. [11, 12, 13]
Key Differences
| Feature [2, 5, 14, 15, 16] | Dividend | Bonus Shares |
| Payout Type | Cash | Extra Shares |
| Asset Change | Company's cash decreases | Company's cash stays the same |
| Value | Gives you money to spend | Increases your ownership stake |
| Tax | Usually taxed as income or specific dividend tax | No immediate tax when you receive them |
Both corporate actions show that a company is financially healthy and profitable. To track upcoming dividends and bonus issues for your stocks, you can check corporate action calendars on financial tracking sites like Investopedia or Yahoo Finance . [1, 7, 17]
AI responses may include mistakes.
Comments
Post a Comment