Five Indian companies that declared bonus shares consistently!
Corporate actions remain one of the most sought-after indications by the investor fraternity to gauge the future performance of the shares.
The equity market, over the last couple of months i.e., from June’s low, yielded handsome returns to investors, and now, it seems that all the low-hanging fruits have already been picked. As such, investors are now in search of new themes and avenues to grow their investments. Corporate actions remain one of the most sought-after indications by the investor fraternity to gauge the future performance of the shares. Many empirical studies suggest that the markets react positively to most corporate action news.
In fact, there are many other ways, in which, shareholders are rewarded by the companies. Some of the prominent corporate actions are:
• Dividends (regular and special)
• Rights issue (issue of shares to existing shareholders at a price lower than the prevailing market price)
• Bonus issue (issue of shares to existing shareholders without consideration)
• Stock split (a division of face value with capital base remaining the same)
• Capital appreciation (in the normal course)
Of these, dividends and rights issues have a direct bearing on an investor’s cash flows. While there is a cash inflow in the former case, there is a cash outflow in the latter. Though bonus issues and stock splits are non-cash events; in general, the capital appreciation seen in these stocks in the near to short term is better than the market.
Bonus issue
This is an issue of shares to the existing shareholders without any monetary consideration. With the bonus issue, the number of shares increases but it does not alter the value of the company as the prices get adjusted accordingly. Also, a bonus issue is a way of capitalising free reserves into capital whereby, shareholders receive additional shares in the company based on their respective holding while the holding remains the same even after the bonus issue. In general, bonus shares are given if there is adequate free reserve available with the company.
By doing so, the company distributes its accumulated profits without any cash outflow. However, there are other factors that are taken into consideration before announcing a bonus issue. One such factor is the sustainability of the company’s financial performance over a longer period of time as earnings get diluted due to an increase in the number of shares and also, due to the fact that the company will need to maintain its dividend distribution policy, which would increase because of a higher capital base.
Let’s take a look at these five Indian companies that have consistently declared bonus shares! If you are an investor in one of the below-listed companies, you definitely have a reason to beam with joy:
Samvardhana Motherson International: Since 1990, the company has issued bonuses to shareholders ten times. Interestingly, out of 10, the ratio has been 1:2 all the time.
Wipro: Since 1990, the company has issued shares to its shareholders eight times. The majority of the time, the company offered bonus shares in the ratio of 1:1 while in the years 1997, 2004, 2010 & 2019, it offered bonus shares in the ratio of 2:1, 2:1, 2:3, and 1:3.
Infosys: The IT major Infosys issued bonus shares eight times since 1990 and interestingly, on every occasion, the ratio has been 1:1.
Indian Oil Corporation: Since 1990, the company issued bonus to shareholders seven times. The recent one was announced in the month of May 2022 in the ratio of 1:2.
ITC: Since 1990, the company issued bonus to shareholders five times. The last one was recommended in the year 2016. It has been almost six years since the company recommended a bonus (its due since long). Meanwhile, we expect some corporate action in this stock in the medium term.