Bonus Shares vs. Stock Dividend — What's the Difference?
Bonus Shares is an additional shares given to current shareholders at no cost. Stock Dividend is a dividend paid to shareholders in the form of additional shares.
Difference Between Bonus Shares and Stock Dividend
Table of Contents
Bonus Shares and Stock Dividend are both methods used by companies to reward shareholders without distributing cash. Bonus Shares refer to the additional shares that a company issues to its current shareholders without any additional cost. These are essentially free shares that shareholders receive based on their existing holdings.
Stock Dividend, on the other hand, represents a dividend payment made by the company to its shareholders in the form of shares rather than cash. When a company declares a Stock Dividend, it issues new shares to shareholders as a percentage of their current shareholding. In essence, it's a method to reinvest the dividend back into the company.
It's easy to confuse Bonus Shares with Stock Dividend since both involve the distribution of additional shares to existing shareholders. However, the primary distinction lies in their origin. Bonus Shares are usually issued from a company's accumulated reserves, whereas a Stock Dividend is a result of the company's decision to pay dividends in the form of shares rather than cash.
Both Bonus Shares and Stock Dividend serve as tools for companies to conserve cash. By distributing shares instead of cash, companies can retain funds for future investments or operations. While both methods increase the number of shares in circulation, they don't alter a shareholder's percentage ownership in the company.
In summary, while both Bonus Shares and Stock Dividend result in shareholders receiving additional shares, their issuance and purpose can vary. Bonus Shares typically arise from accumulated reserves, while Stock Dividends are dividends declared in the form of shares.
Nature of Issue
Free shares issued to existing shareholders
Dividends paid in the form of shares
Usually from accumulated reserves
Decision to pay dividends in shares
Reward shareholders and capitalize reserves
Conserve cash by paying dividends in shares
Effect on Ownership Percentage
None (shares are issued instead of cash)
None (dividend is in the form of shares)
Compare with Definitions
Increases total shares without diluting ownership.
Despite receiving Bonus Shares, her percentage ownership in the company remained unchanged.
Dividends paid in additional shares.
Instead of cash, he received a 5% Stock Dividend from his investments.
Free shares issued to existing shareholders.
As a loyal investor, she received Bonus Shares from the company.
A means for companies to conserve cash.
The startup, wanting to retain cash, decided to issue a Stock Dividend.
Rewards shareholders without cash outflow.
The firm preserved its cash by giving out Bonus Shares to its investors.
Increases circulating shares without altering ownership stake.
The Stock Dividend expanded the number of shares, but his stake in the company stayed the same.
Shares distributed from accumulated reserves.
The company decided to distribute its ample reserves in the form of Bonus Shares.
Shareholders receive shares proportional to their holding.
Owning 100 shares, a 10% Stock Dividend gave her an additional 10 shares.
A method to capitalize company reserves.
To capitalize on its reserves, the company issued Bonus Shares.
Declared dividends in the form of shares.
The board announced a Stock Dividend, allowing shareholders to expand their portfolios without cash transactions.
Do Stock Dividends require a shareholder to purchase additional shares?
No, Stock Dividends are given without any purchase, similar to a cash dividend but in the form of shares.
How do Bonus Shares affect a shareholder's total holdings?
Bonus Shares increase a shareholder's total holdings without any cost.
Why might a company choose to issue a Stock Dividend over a cash dividend?
A company might issue a Stock Dividend to conserve cash for operations or future investments.
Do Bonus Shares dilute a shareholder's percentage ownership?
No, Bonus Shares do not dilute a shareholder's percentage ownership in the company.
Do Stock Dividends increase the company's total assets?
No, Stock Dividends merely shift a portion of retained earnings to common stock.
Where do Bonus Shares typically come from within a company's finances?
Bonus Shares are usually issued from a company's accumulated reserves.
Which results in cash being paid out to shareholders: Bonus Shares or Stock Dividend?
Neither. Both Bonus Shares and Stock Dividend involve distributing shares, not cash.
How does a Stock Dividend affect a company's stock price?
Typically, after a Stock Dividend, the stock price adjusts downwards proportionally to the dividend percentage.
How are Stock Dividends different from stock splits?
While both increase share count, Stock Dividends use retained earnings, whereas stock splits just divide existing shares without affecting financials.
Can both Bonus Shares and Stock Dividends be issued simultaneously?
Yes, a company can decide to issue both simultaneously, although it's based on their financial strategy.
Are Bonus Shares taxable for shareholders?
Tax implications vary by jurisdiction, but generally, the issuance of Bonus Shares might not be taxable, but the sale might be.
Can a company reverse its decision to issue Bonus Shares?
Once declared and issued, Bonus Shares cannot be reversed.
Why do companies issue Bonus Shares?
Companies issue Bonus Shares to capitalize reserves, reward shareholders, and possibly enhance market liquidity.
Is there a cost associated with receiving Stock Dividends?
No, shareholders receive Stock Dividends without any associated cost.
Do Bonus Shares impact the earnings per share (EPS) of a company?
Yes, issuing Bonus Shares increases the number of outstanding shares, potentially diluting the EPS.
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