You can invest your hard-earned money in stocks. Stocks are one of many ways you can invest your hard-earned money. Companies issue shares to accumulate investors’ money for business expansion. When a company makes a surplus / profit, it issues a proportion of the profits to its shareholders in the form of bonus shares or dividends.
So the main difference between the two financial terms: bonus shares and stock dividend is that stock dividends are the payment that companies make to allocate wealth to their shareholders in the form of more shares, in addition to the ones they already own, and not in cash, while bonus shares are the new / additional shares, free of charge, issued to the shareholders of the company.
Comparison parameter Bonus shares Stock dividend
Sense | A bonus share is when a company decides to give additional shares to its existing shareholders. | The stock dividend is a portion of the company’s earnings that the company distributes to its shareholders in the form of cash. |
Purpose | The purpose of issuing bonus shares is to increase the liquidity of a company’s shares, that is, how quickly shares can be bought and sold on the market without affecting their price. | The purpose of stock dividends is to distribute wealth to the shareholders of the company. |
Calculation mode | The bonus shares are decided to distribute to the shareholders in the form of a ratio. | Dividends on shares are decided to be distributed to shareholders as a percentage. |
Benefit | Bonus shares provide non-cash benefits. | The stock dividend is a monetary benefit. |
Shareholder allocation | A company can issue bonus shares to its shareholders even when the company has incurred losses and this can be done with the reserves accumulated by the company in recent years. | Under the 2013 Companies Act, a company can pay dividends to shareholders only when the company makes substantial profits at the end of the financial year. |
Sometimes the company issues additional shares to its current shareholders based on the number of shares each shareholder owns. These actions are known as ‘bonus actions’. If the shareholders of the company are qualified to receive bonus shares, it is credited to their Demat account.
Why do companies issue bonus shares?
Sometimes a business may have insufficient funds to pay dividends despite making a profit. In this scenario, the company issues bonus shares instead of dividends to its existing shareholders, in addition to its current shareholders of the company. Bonus shares are also known as earnings capitalization and are distributed to shareholders from the reserves or earnings of the company.
Bonus shares are issued by companies rather than paying a cash dividend. The various benefits that an investor can receive are as follows:
The stock dividend is the payment that is made in the form of shares instead of cash to issue wealth to the shareholders of the company. Stock dividends are also known as scrip dividends.
Investments guarantee an individual’s security, growth, and income. Although each investment has its own unique set of benefits and risks, it highlights the importance behind how they help most people build wealth, finance retirement, and build savings and businesses to make the most of their earnings and earnings.
Many inexperienced investors may be unfamiliar with certain financial terms under the topic of dividend investing, such as stock dividends, or may even feel intimidated by them. Therefore, this article aims to clarify some definitions of basic terms, benefits and restrictions of dividends in stocks to help investors make the right decisions when it comes to investing in stocks and shares of a company and get the best returns. of such investments.
This article also informs us about how it is a good idea to buy shares of top companies, which have announced their bonus share issuance, by discussing how it is a positive signal to the market that the company is doing well in its long-term growth. . along with the advantages and disadvantages that a bonus share can bring to an investor.
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