- Infosys announced a 1:1 bonus share issue, meaning for every existing share held, investors will receive an additional share. This will effectively double the number of shares held.
- A bonus issue distributes a company's retained earnings to shareholders in the form of additional shares rather than cash. It does not change the inherent value of the shares.
- When the bonus shares are distributed, the stock price will adjust downward on the ex-bonus date to account for the increased number of shares outstanding. Earnings per share will also decrease as a result of the bonus issue.
2. • Infosys Limited (Infosys) – along with its majority owned and controlled
subsidiaries – is a leading global consulting and IT services firm. The
company provides end-to-end business solutions that leverage technology.
• Infosys is a debt-free company. It doesn't have any outstanding debt or fixed
deposits. The company presently generates sufficient cash internally to
finance all its operational, financing and investment requirements.
• Infosys does not offer a dividend reinvestment program or dividend stock
program at present.
• Currently, Infosys pays dividends to its shareholders. The current dividend
policy is to distribute up to 40 percent of the PAT (consolidated Indian
GAAP) as dividend. The Board of Directors reviews the dividend policy
periodically and on Apr 15, 2014 decided to hike the dividend policy to up
to 40 percent of post-tax profits from up to 30 percent of post-tax profits
earlier.
4. Infosys pays dividend twice a year. An interim dividend is generally declared by the
board in October along with the adoption of second quarter results. Additionally, a final
dividend is recommended by the Board in April along with the adoption of annual
results
Per share data
Particulars 2013-14 2012-13 2011-12 2010-11 2009-10
No. of
shares for
EPS
57,14,02,56
6
57,42,32,83
8
57,41,99,09
4
57,40,13,65
0
57,33,09,
523
EPS from
ordinary
activities-
basic
before
exceptiona
l items
178.39 157.55 139.07 112.26 100.37
Dividend
per
share(1)
63 42 37 30 25.00
Book
Value
736.64 627.95 518.21 426.73 384.01
6. Bonus shares
Companies distributes a portion of its profits to shareholders. This is called dividend.
Sometimes, however, the company may announce bonus shares – additional shares for
each existing shareholder. As part of a bonus issue, the company uses surplus to convert
it into shares.
7. The company also announced a dividend of Rs 30 per share . The two announcements
led to a 7 per cent surge in stock prices and sent Infosys to a 52-week high of Rs 3,908
in intraday trade. Infosys has not fixed a record date for the bonus issue yet.
Bonus share is cheered: When a company earns money, it can use this in multiple
ways – reinvest into the company, distribute the cash as dividends or issue more shares.
The last two implies giving back money to the shareholders.
No other use for cash: Infosys is issuing bonus shares along with the usual dividend
payment. Investors have been asking the company to use the cash either for acquisitions
or return it to shareholders. This amount could have been used for expansion or
purchasing a new company either of which could help improve its profitability. This
shows the company values giving back to shareholders more and does not foresee better
use of the money lying idle.
8. Bonus share issue ratio: When a company announces a bonus share issue, it gives a
ratio with it. Infosys said it will issue bonus shares in the 1:1 ratio. This means, for
every share an investor already holds, it will issue additional share. So, effectively this
will double portfolio size.
Record date: When a company announces a bonus issue, it does not happen
immediately. Like the dividend distribution, there is a particular day when the new
changes are incorporated. This is called the ‘Record’ date. If you already have the
shares before this date, you will be eligible to get the extra shares.
Price changes: Until the ‘Record’ date, price of the stock usually rises as more
investors want to be eligible for the extra stocks. The day after the bonus is distributed,
the share price is adjusted. This is called the ex-bonus date. So, if the company has
issued a 1:1 bonus share, then the price of the shares will fall to nearly half is original
price. A bonus issue does not change the share’s inherent value. Only the total number
of shares floating in the market rises. So, the prices of the shares fall.
9. • The bonus issue will double the company's equity base, but earnings will not double
overnight. As a result, earnings per share (EPS) will fall and hence the share prices
will correct substantially a day before the record date (called the ex-date) of the
bonus issue.
• A bonus issue is different from a stock split, in which case the face value of shares
fall by half (or in whatever ratio the company decides to split). In case of bonus
issue, the face value does not change. So, Infosys shares will continue to have a face
value of Rs 5 per share post the bonus.
• Bonus issues may also result in higher dividends for investors. For instance, if
Infosys give Rs 30 per share dividend next year too, investors who hold the stock,
will get Rs 60 because of the bonus they got this year.
• Bonus shares are issued from retained earnings. Infosys had retained earnings of Rs
46,689 crore as on September 30, 2014. Infosys' share capital (Rs 286 crore) will
rise.
• Bonus issue is not the way to reward shareholders. The only two ways to reward
shareholders are
1) buyback and
2) higher dividend payout.