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Bonus Shares vs. Stock Dividend — What's the Difference?

Edited by Tayyaba Rehman — By Fiza Rafique — Published on December 4, 2023
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.
Bonus Shares vs. Stock Dividend — What's the Difference?

Difference Between Bonus Shares and Stock Dividend

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Key Differences

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.
Fiza Rafique
Dec 04, 2023
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.
Fiza Rafique
Dec 04, 2023
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.
Fiza Rafique
Dec 04, 2023
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.
Fiza Rafique
Dec 04, 2023
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.
Fiza Rafique
Dec 04, 2023
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Comparison Chart

Nature of Issue

Free shares issued to existing shareholders
Dividends paid in the form of shares
Fiza Rafique
Dec 04, 2023

Origin

Usually from accumulated reserves
Decision to pay dividends in shares
Fiza Rafique
Dec 04, 2023

Purpose

Reward shareholders and capitalize reserves
Conserve cash by paying dividends in shares
Fiza Rafique
Dec 04, 2023

Effect on Ownership Percentage

No change
No change
Fiza Rafique
Dec 04, 2023

Cash Outflow

None (shares are issued instead of cash)
None (dividend is in the form of shares)
Fiza Rafique
Dec 04, 2023

Compare with Definitions

Bonus Shares

Increases total shares without diluting ownership.
Despite receiving Bonus Shares, her percentage ownership in the company remained unchanged.
Fiza Rafique
Oct 25, 2023

Stock Dividend

Dividends paid in additional shares.
Instead of cash, he received a 5% Stock Dividend from his investments.
Fiza Rafique
Oct 25, 2023

Bonus Shares

Free shares issued to existing shareholders.
As a loyal investor, she received Bonus Shares from the company.
Fiza Rafique
Oct 25, 2023

Stock Dividend

A means for companies to conserve cash.
The startup, wanting to retain cash, decided to issue a Stock Dividend.
Fiza Rafique
Oct 25, 2023

Bonus Shares

Rewards shareholders without cash outflow.
The firm preserved its cash by giving out Bonus Shares to its investors.
Fiza Rafique
Oct 25, 2023

Stock Dividend

Increases circulating shares without altering ownership stake.
The Stock Dividend expanded the number of shares, but his stake in the company stayed the same.
Fiza Rafique
Oct 25, 2023

Bonus Shares

Shares distributed from accumulated reserves.
The company decided to distribute its ample reserves in the form of Bonus Shares.
Fiza Rafique
Oct 25, 2023

Stock Dividend

Shareholders receive shares proportional to their holding.
Owning 100 shares, a 10% Stock Dividend gave her an additional 10 shares.
Fiza Rafique
Oct 25, 2023

Bonus Shares

A method to capitalize company reserves.
To capitalize on its reserves, the company issued Bonus Shares.
Fiza Rafique
Oct 25, 2023

Stock Dividend

Declared dividends in the form of shares.
The board announced a Stock Dividend, allowing shareholders to expand their portfolios without cash transactions.
Fiza Rafique
Oct 25, 2023

Common Curiosities

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.
Fiza Rafique
Dec 04, 2023

How do Bonus Shares affect a shareholder's total holdings?

Bonus Shares increase a shareholder's total holdings without any cost.
Fiza Rafique
Dec 04, 2023

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.
Fiza Rafique
Dec 04, 2023

Do Bonus Shares dilute a shareholder's percentage ownership?

No, Bonus Shares do not dilute a shareholder's percentage ownership in the company.
Fiza Rafique
Dec 04, 2023

Do Stock Dividends increase the company's total assets?

No, Stock Dividends merely shift a portion of retained earnings to common stock.
Fiza Rafique
Dec 04, 2023

Where do Bonus Shares typically come from within a company's finances?

Bonus Shares are usually issued from a company's accumulated reserves.
Fiza Rafique
Dec 04, 2023

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.
Fiza Rafique
Dec 04, 2023

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.
Fiza Rafique
Dec 04, 2023

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.
Fiza Rafique
Dec 04, 2023

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.
Fiza Rafique
Dec 04, 2023

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.
Fiza Rafique
Dec 04, 2023

Can a company reverse its decision to issue Bonus Shares?

Once declared and issued, Bonus Shares cannot be reversed.
Fiza Rafique
Dec 04, 2023

Why do companies issue Bonus Shares?

Companies issue Bonus Shares to capitalize reserves, reward shareholders, and possibly enhance market liquidity.
Fiza Rafique
Dec 04, 2023

Is there a cost associated with receiving Stock Dividends?

No, shareholders receive Stock Dividends without any associated cost.
Fiza Rafique
Dec 04, 2023

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.
Fiza Rafique
Dec 04, 2023

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Author Spotlight

Written by
Fiza Rafique
Fiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
Tayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.

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