Introduction

Have you ever received a reward for being a company’s long-term shareholder? Many companies engage in corporate actions to reward their shareholders in the form of bonus shares, stock splits, or dividends.

Bonus shares and stock splits are common discussion topics in board meetings. The corporate action often makes a news headline as the company is ready to increase the number of shares it is offering for trading.

What are bonus shares?

Bonus shares are extra shares gifted to existing shareholders. There is no monetary involvement. The objective of issuing bonus shares is the distribution of accumulated reserves or profits amongst shareholders, indicating a company’s financial stability and growth prospects.

Open Your free Demat Account in just 5 minutes!

Suppose a company announces a bonus issue in the ratio of 1:1. This means every shareholder will be given one additional share for every share owned. So, if you have 100 shares, you will be given 100 bonus shares. The corporate action increases the number of shares traded, potentially reducing the share’s price but raising shareholder equity in the company.

Bonus shares vs dividends vs stock splits

Bonus shares are extra shares given to existing shareholders for free. The number of additional shares depends on the number of shares you already own. These shares are issued out of the company’s reserves. While you don’t pay anything for the extra shares, the overall value of your holding remains the same because the share price generally adjusts downwards. For example, if a company declares a 1:1 bonus, the number of shares doubles, but the share price typically halves.

Dividends are a portion of the company’s profits distributed to shareholders, typically in cash (cash dividends) or additional shares (stock dividends). Unlike bonus shares, the value of shares held remains the same unless the company issues stock dividends, which can slightly dilute the share price.

A stock split involves dividing the existing shares into multiple new shares. For example, in a 2-for-1 split, each share is divided into two shares, and the price is halved. After the split, you have more shares, but the overall value of your holding doesn’t change because the per-share price adjusts proportionately. The objective of a stock split is to make it more affordable for smaller investors.

2 stocks offering bonus shares in September 2024

​​​​​​​

1. VST Industries

VST Industries manufactures and sells cigarettes and unmanufactured tobacco. It was established in 1930 and is India’s third-largest player in the cigarette market. The company manages well-known cigarette-selling brands, including Charms, Moments, Editions, Charminar, and Special. The record date for the issuance of bonus shares by VST Industries is September 6, 2024, and the ratio is 10:1.

VST Industries’ share price closed at Rs. 4,567.60 on the National Stock Exchange (NSE) and Rs. 4,567.70 on the Bombay Stock Exchange (BSE) as of August 30, 2024. The company’s market capitalisation was worth Rs. 7,053 crore. The share’s 52-week high price was Rs. 4,922.50, and the 52-week low price was Rs. 3,159.90.

2. Garment Mantra Lifestyle

Garment Mantra Lifestyle is one of the well-known manufacturers, traders, and retailers of textiles and knitted apparel. It supplies a variety of apparel that meets global quality standards. The company’s board of directors will issue bonus shares on September 3, 2024, in the ratio of 1:1. So, every eligible investor will receive one additional equity share for every equity share held.

As of August 30, 2024, the company’s share price closed at Rs. 7 on BSE. It had a market capitalisation of Rs. 70 crore. The 52-week high share price was Rs. 9.22, and the 52-week low share price was Rs. 3.78. The company’s year-on-year (YoY) gain in revenue was 48.8% for the June 2024 quarter.

Final thoughts

Bonus shares offer benefits to the company’s long-term shareholders by increasing their investment free of cost. The company’s stock price is adjusted with a corresponding drop after the issuance of bonus shares. The adjustment depends on the number of shares issued in the bonus issue. In September 2024, you can expect two stocks to issue bonus shares. Reliance Industries Limited (RIL) will also discuss the idea of issuing bonus shares in a 1:1 ratio to equity shareholders in the board meeting scheduled for September 5, 2024.

Financial Calculators: SIP Calculator | SWP Calculator | Compound Interest Calculator | EMI Calculator | FD Calculator | Retirement Calculator | Option Value Calculator | Inflation Calculator | Lumpsum Calculator

Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price