Companies not only take dividends but also take some such decisions from time to time, which have an impact not only on the stock but also on the shareholders.
Stock Market Listed Companies: Recently companies like Vedanta Limited, NMDC and Sanofi India have decided to give dividend. Usually, dividend is paid by those companies, which are making profit. Dividend is a part of the income of those companies, which is distributed among the shareholders. The decision to pay dividend is made by the board of directors of the company. Companies not only take dividends but also take some such decisions from time to time, which have an impact not only on the stock but also on the shareholders. Like the decision to give dividend, the decision to bring a rights issue or share buy back. Based on these decisions, you can also decide to buy and sell shares of the company.
Dividend
The decision to pay dividend is made by the board of directors of the company. The board decides how much dividend is to be paid to the investors. Usually dividend is paid by those companies which are making profit. They give a part of their income as dividend to the investors. If a company announces to give dividend, then the sentiments get better about it. It is believed that sufficient cash is coming with the company. It is also a good way for investors to earn extra income. Suppose you have 1000 shares of the company and get a dividend of Rs 10 per share, then you will get an additional profit of Rs 10,000 in addition to the growth in the share.
Rights Issue
Companies listed in the stock market bring rights issue to raise funds. Under the rights issue, the shareholders of the company can buy shares in a fixed ratio. If the company has fixed the ratio of 1:4 for the rights issue, then the shareholder can buy an additional share on the 4 shares already held by him. The funds are used by companies for expansion of business or to pay off debt. Rights issue increases the equity base of the company, increasing the liquidity of the company’s shares in the stock exchange. Companies also give discounts to their shareholders when they buy shares through rights issue.
Share Buyback
Share buy back is the process in which companies buy back their shares from the market. In this way the company re-invests in itself. If the share buyback is done at more than the market price, then the investors have a chance to earn profits. At the same time, after that the number of shares in the market decreases, then the ownership of each shareholder increases somewhat on a comparative basis. Whenever the company feels that it has more capital, it does buyback.
Bonus Issue
Bonus issue is a type of stock dividend that a company pays to its shareholders. In this, the company does not give money like dividend but shares. Bonus shares are given free of cost on the basis of how many shares of the company they hold. Bonus shares are usually issued in a specific ratio, such as 1:1, 2:1, 3:1. If the ratio is 2:1, then the shareholder gets two more shares for each share. The shares with him increase but the value of his investment does not increase.
Stock Split
Companies also take the decision of stock split. Stock Split is linked to the face value of the share. Suppose the face value of the share is Rs 10 and the share is split in the ratio 1:2. This will make the face value of the share Rs 5 and if you had 100 shares, you would now have 200 shares.
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