Difference between Bonus Issue, Stock Split and Dividend – Bonus vs Split vs Dividend

Overview

As you know sometimes the companies that are listed in stock market reward there share holder in different ways. It comes under the corporate action of the companies in the Financial Market that is usually use to boost the number of shares traded by the share holder.

Company give those reward in the term of Bonus, Stock Split, Dividend. Today here we discuss all of them in details

1) Bonus Issue
2) Stock Split
3) Stock Dividend

1) Bonus Issue

Stock bonus also known as capitalization issue, this offer is only for the existing share holders without any cost. In this the existing shareholders get extra shares in a certain proportion. Such that 1:1, 1:2, 2:1, 4:1 and so on.

For example if any company offer Stock bonus like in 4:1 ratio. So if an investor holds 10 shares of a certain company, the investor will get 40 (4*10) shares in total. In this every existing shareholders will receive four shares for every one share.

2) Stock Split

A stock split is the action taken in which a company divides its existing shares into multiple shares to increase the liquidity of shares. The Stock split affect the face value of the share like if it split in 1:2 ratio and face value is 100 than it will be 100/2 than the new face value will be 50.

Lets understand Stock split in an example
If a company announces a stock split in the 1:2 ratio. It means for every 1 share held, it will become 2 shares, for every 100 shares held, the share count will become 200 shares with the same investing amount and share price also divide by 2 if the current price of the share is 100 than after 1:2 ratio of the split share the value will be 50.

3) Stock Dividend

A stock dividend is a method that is used by companies to distribute wealth to shareholders, is a dividend payment made in the form of shares rather than cash. The dividend will be approved by the shareholders through their voting rights. It can also be issued as shares of stock or other property. And the Dividend cash directly transfer in the shareholders account.

Example If company gives dividend by Rs 5 per share like
Dividend/Share
5/Share
if you have 100 share of any company that you will get 5*100 = 500 direct in your account in cash form

Conclusion

All of them Bonus, Split and Dividend offer by the companies for their existing shareholders. We can say that it is a corporate action by companies to the existing share holder. And all of them help to share holder to increase their wealth.