The Power of Dividends, Bonuses, and Splits in Long-Term Investments

Patience is the key to unwavering gains. This is not just a saying, it is the experience of people. You can see it all around you. No one gets anything they desire overnight, they have to earn with patience, resilience, and hard work. The same goes for long-term investment. The gains that long term investment can reward you with are worth waiting for. A small amount of investment today in the right place gives you good gains. These good gains are not subjected to years of wait, various blue chip companies make sure to reward you timely without the need to sell the share. These rewards can be termed dividend issues, bonus issues, and stock splits. 

These are different rewarding techniques used by well-performing companies to compensate for the investor’s trust. People who have a good quantity of shares are highly beneficial for these kinds of rewards.  

Why is long term investment necessary? 

Irrespective of your profession, you should use a fraction of your earnings for long-term investment in the stock market. Even if you are a full-time trader, some of the money should be invested with long-term vision. 

Long term investments in companies that keep rewarding their shareholders timely with rewards like dividends and bonuses are important. It helps investors create a good side income and also keeps your money growing at a steady and stable pace. 

Further, long-term investments are not subjected to sudden market volatility rates. Market ups and downs come and go but the blue chip companies who have good potential contribute decently to their respective sector and the country’s GDP always rises up. Apart from giving dividends and bonuses, they multiply your gains beyond imagination in 10-20 years. 

You should study the stocks and companies before investing in them. Apart from fundamental analysis, it is important to analyze them with a technical perspective. It will help you in knowing the buying and selling behavior of the institutions in that stock. You can get many rewards for being a long-term investor, here are some of them: 

Dividend Issue 

Dividend Issue is an excellent way used by companies to reward their shareholders. It is an excellent way of passive income for one’s who have made long term investments in good companies. Companies offer a certain amount of money to the shareholders on each share. It is like a loyalty reward. For example, a company can issue a dividend of Rs 5 per share. Now if someone holds 1000 shares of that company, they will get Rs5000. The amount of dividend is not fixed for any share, it is decided by the company based on the profits they made in the quarter or Financial Year. Sometimes, dividends are distributed monthly or semi-annually. 

Shareholders can either enjoy the cash dividends rewards or they can reinvest the dividends to compound the rewards. 

How do shareholders benefit from stock dividends? 

Dividend payouts are highly beneficial for the investors or shareholders, especially the ones who have a bulk quantity of that share. When the company decides to issue a dividend payout, the shareholders get the reward for being loyal investors in the company’s ups and downs. The ones with bulk quantity get a hefty amount which acts as an extra reward for their investments.  

You can check the dividend yield of the company before investing in it for the purpose of getting good dividends timely. 

Bonus Issue 

Bonus Issue is another type of reward offered by the company to its shareholders. The bonus issue are extra shares offered to the investors based on the current holdings of the investor. It is also known as a capitalization issue or scrip issue. Companies give bonus issues to attract new investors. Also, a lot of companies distribute bonus shares instead of increasing their dividend payout.   

The company can decide to give 1 share on every 10 existing shares. In the scenario, if an investor holds 1000 shares of that company, then they have 100 bonus shares. Here, the value of shares remains the same, but the number of shares increases in the portfolio. This imprints a positive impression on the heads of investors and other potential investors about the company. The company holds the power to increase the liquidity of its shares and is in good financial health to keep growing and increasing shareholder value.  In short, the advantage of bonus issues can be simplified into these key points: 

1. Encouraging more long term investments 
2. Rewarding existing investors
3. Improving the financial image of the company in heads of new investors 
4. Increased the liquidity of the company, leading to smooth investment options for investors

How do I get the Bonus Shares? 

To get the bonus shares one has to buy the shares of that company before their record date. The record date is the date decided by the company to count all the eligible shareholders for bonus shares. If you have purchased the share after the record date. Then you’ll not be subjected to the bonus issue. Here are some terms that you need to learn to get the bonus issue: 

1. Ex-Date: Ex-date is almost two trading days before the record date. The investor needs to buy the shares at least one day before the ex-day to become eligible in the record of the company. 
2. Cum Bonus: This translates to “with bonus”. The time period between the record date and the date of issue of shares. If you own shares before the bonus issue then the shares are referred to as cum bonus. 
3. Ex-Bonus: This translates to “without bonus”. After the bonus issue has been distributed to the eligible shareholders, the share is called “ex-bonus”. You won’t receive the bonus shares as you bought the shares after the record date.  

Types of Bonus Shares 

Bonus shares are of two types, but both are beneficial to the existing shareholders in either way.

1. Fully Paid Bonus Shares: These shares are given to the shareholders free of cost. That means the shareholder does not need to spend any money to buy it. 
2. Partly Paid Bonus Shares: Partly paid bonus shares are not distributed free of cost, but also do not require the shareholders to pay the complete sale price. It is like a discount of shares for existing shareholders. They can buy these shares at the discounted price set by the board of directors. 

Exciting Fact: One of the exciting facts about bonus issues or bonus shares is that they are not applicable to taxes. Hence, they are more favorable for investors from the taxation perspective compared to cash dividends. However, investors are subjected to pay tax on overall capital gains at the time of selling shares. 

What are the Benefits of Bonus Shares? 

Bonus share serves as an excellent reward for long-term investors. The perk of getting free shares is unmatchable for investors who have invested good capital. The portfolio value is increased without any additional investment. Moreover, the bonus shares are not subjected to immediate capital gains, helping investors in tax gains. 

The idea of bonus shares comes from the company’s decision to reinvest them for good use this clearly indicates that the profits of the company are going well and future growth is highly anticipated. Investors can this as a confirmation of their investment and sign to invest more. 

Stock Split 

A stock split is another great path paved by blue-chip companies to attract more retail investors. In the simplest language, in a stock split the price of shares gets reduced, and the number of shares increases. This usually happens when the value of shares keeps increasing with increased buying of the investors (especially institutional investors). Consistent buying makes the stock expensive for retail investors. So the company decided to split the price of the stock and increase the stock numbers. 

Let’s understand with the simplest example, suppose share company “A” is valued at rs10,000. Now, it is difficult for retail investors to buy bulk quantities as the overall capital requirement would be too much. So, the company splits its price in the ratio of 1:10 (it may vary from company to company, this decision is taken by the board of directors). This means the current value of the share will be split into 10 shares. Now, the value of shares company “A” will be Rs1000 per share, which is quite affordable for retail investors. Whereas, the number of stocks will increase in the portfolio of existing investors but its value will remain the same. 

What is a Reverse Stock Split? 

As the name suggests, it is the reverse of what we read above. In the reverse stock split, the number of shares decreases, and their value increases in the same proportion. But, in both reverse stock split and forward stock split, the market value of the company remains the same. A reverse stock split is usually a negative sign for the investors. Usually, this corporate action is taken to prevent the stock from getting delisted from the major exchanges by increasing their price band. 

Here, 2 or more stocks merge and become 1 stock.  This hampers the value of the portfolio to a great extent. 

How are stock Splits useful for Investors? 

Stock splits not only benefit the existing benefits but also the ones who were longing to invest in the stock but were unable to invest because of spiked pierce. The price breakdown allows retailers to invest without any trouble. All together help boost investor’s confidence and attract new investments. Stock Splits also indicate the company’s beliefs and confidence in its future prospects, which can boost investor mood and increase demand for the shares. Overall, stock splits can improve market dynamics and investor accessibility while also increasing confidence and liquidity.

BuyBack Shares 

Every company has issued a certain number of shares to be traded. When the company decides to withdraw its outstanding shares, it is known as a buyback. It is done to reduce the number of open shares in the market. There are different reasons why a company issues a buyback, some do it to manage the supply of shares and to increase the stake of existing shareholders by adjusting valuation by giving higher dividends. Another reason for companies issuing buybacks is to reward their employees and shareholders. This also helps in avoiding the dilution of existing shareholders. 

To fund the buyback, the company cash uses its liquid assets, cash or can take debt to for better profits in the long term. 

How is Buyback Beneficial for Investors? 

The majority of the time, the buyback is issued at a higher price than the current trading price of the share. Taking shares from the owner at a lower price and paying them with an increased price is a double win for investors. They get to to increase their stake in the company and simultaneously eastern money for it. Secondly, the earnings per share increase since the stake is increased and also the supply is constrained, creating a good demand. Also, unless the shareholder or the investors choose to sell all their shares, buyback is a tax-free transaction. 

Conclusion 

Long-term rewards are quite important in the world of investments. When it comes to bonus issues, dividend payouts, and stock splits, one thing is clear: patience pays off. While this may cause short-term changes, the underlying value of an investment frequently emerges over time. Long-term devotion is rewarded with bonus issues and dividend payouts, which provide a consistent income and a sense of ownership. Stock splits reduce the cost and accessibility of shares, attracting additional investors. Investors who focus on the long term can reap the benefits of regular growth, compound their wealth, and weather market volatility, ultimately safeguarding their financial future.

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