Dividends, stock splits, bonus issues, buybacks and rights issues explained
What each corporate action is, how it works, what record date and ex-date mean, and what changes and what does not, with illustrative numbers and no view on any company.
A corporate action is a decision by a company that affects its shares or its shareholders. Companies announce them on the stock exchanges. This guide explains the common ones and the dates that go with them. Examples use invented numbers. It describes how each action works, not whether any company should take it or whether it is good news.
At a glance
| Action | What happens | What stays the same |
|---|---|---|
| Dividend | Company pays part of its profit to shareholders in cash | Number of shares |
| Stock split | Each share is divided into more shares of lower face value | Total value of a holder’s shares, before market moves |
| Bonus issue | Free extra shares in a set ratio, issued from reserves | Company’s total value, before market moves |
| Buyback | Company buys its own shares from shareholders | Company continues to operate |
| Rights issue | Existing shareholders are offered new shares, usually at a set price | Holding is unchanged unless the offer is taken up |
Dividends
A dividend is a share of profit paid to shareholders, usually per share: a ₹5 dividend on 100 shares is ₹500. Companies can pay an interim dividend during the year, or a final dividend after the year’s accounts, which shareholders approve at the annual general meeting. Paying a dividend is the company’s choice; there is no obligation to pay one.
Stock splits
In a split, the face value of a share is reduced and the number of shares rises in proportion. A 1:2 split turns 100 shares into 200. The company is the same size and each holder owns the same proportion of it; the price per share adjusts on the exchange to reflect the larger number of shares (a share trading at ₹1,000 before a 1:2 split would be adjusted to about ₹500 before any market move).
Bonus issues
A bonus issue gives existing shareholders extra shares free, in a ratio such as 1:1 (one new share for each held). The company creates them by converting part of its reserves into share capital. As with a split, the number of shares rises and the price is adjusted. The difference from a split is the accounting: a bonus moves money from reserves to share capital, and a split changes face value.
Buybacks
In a buyback, the company repurchases its own shares from shareholders, reducing the number of shares outstanding. It can be done through a tender offer to shareholders or through the market. Because there are fewer shares afterwards, per-share figures such as EPS are calculated over a smaller base.
Rights issues
A rights issue offers existing shareholders the right to buy new shares, in proportion to what they hold and at a stated price, within a stated period. A shareholder can take up the offer, or in some cases sell the right. It is a way for a company to raise money from its current shareholders.
Record date and ex-date
Companies fix a record date: the date on which the register decides who is entitled to the dividend, bonus or rights. The ex-date is the first day on which the shares trade without that entitlement. Under the one-working-day (T+1) settlement now used in India, the two fall on the same day. See what T+1 settlement means.
A typical sequence:
- Announcement by the board, with the record date.
- Ex-date and record date.
- Payment or credit of the dividend, bonus shares or split shares.
Each step has its own date on the exchange announcement.
Effects on numbers you read
- After a split or bonus, per-share figures such as EPS and historical prices are adjusted so periods remain comparable.
- A dividend is not an expense in the profit and loss; it comes out of profits after tax and appears in the cash flow statement under financing.
- A buyback reduces shares outstanding and shareholders’ equity.
For how these show up in the statements, see the three financial statements explained.
Common questions
Is a dividend guaranteed? No. The board decides each time.
Does a split make a company worth more? No. The company and each holder’s proportion are unchanged; only the number of shares and the price per share change.
Where do I find the dates? In the company’s announcement on the exchanges and its investor relations page.