In the dynamic world of stock investing, understanding key corporate actions like dividends, bonus issues, and stock splits is essential for every investor. These mechanisms not only signal a company’s health but also directly impact your portfolio’s value and liquidity.
Dividends represent a share of profits distributed to shareholders. When a company declares a dividend, it rewards loyal investors with cash or additional shares. For instance, a ₹10 dividend per share means you’ll receive ₹10 for each share you own, typically paid quarterly or annually. This payout reduces the stock price by the dividend amount on the ex-dividend date, but your overall wealth remains intact if you reinvest.
Bonus issues, on the other hand, are ‘free’ shares given to existing shareholders in proportion to their holdings, say 1:1 or 2:1. Funded from the company’s reserves, they increase the number of shares outstanding without diluting value. A stock trading at ₹1000 might drop to ₹500 after a 1:1 bonus, making it more affordable while preserving market cap.
Stock splits achieve a similar democratization. In a 2-for-1 split, one share becomes two, halving the price. This boosts liquidity and attracts retail investors without changing fundamentals. Tech giants like Apple have repeatedly split shares to broaden ownership.
Why care? These actions boost investor confidence, enhance tradability, and often precede price rallies. However, always check tax implications—dividends are taxable income, while bonus and splits are usually tax-deferred. Savvy investors track announcements from boards to time entries and exits effectively.
As markets evolve, mastering these basics equips you to navigate volatility and capitalize on opportunities. Stay informed, diversify, and let corporate actions work in your favor.