Saturday, January 1, 2011

Bonus Issue

A bonus issue is when a company issues new shares to an existing shareholder at no extra cost. This may be in lieu of a dividend, which could be suitable to some growth companies, which would be better off reinvesting retained earnings to grow the company. Some argue it is an effective means for the company to distribute retained earnings to the shareholders, however in reality it is just shuffling stock around, and has no real effect except perhaps to reduce the share price due to the dilution effect of having more shares on issue.

Synonyms: Share dividend, Stock dividend

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