Describe a situation where a company might issue bonus shares instead of paying out dividends in cash.
Understand the Problem
The question asks about a scenario where a company would opt to distribute bonus shares (also known as stock dividends) instead of cash dividends. This involves understanding the motivations behind this decision, which often relates to the company's financial position, growth plans, and strategies for rewarding shareholders.
Answer
Companies issue bonus shares instead of cash dividends to retain cash for reinvestment or to improve liquidity.
Companies might issue bonus shares instead of cash dividends to retain cash for reinvestment, business growth, or to improve liquidity. This is particularly common when a company has irregular profits or wants to reward shareholders without depleting its cash reserves.
Answer for screen readers
Companies might issue bonus shares instead of cash dividends to retain cash for reinvestment, business growth, or to improve liquidity. This is particularly common when a company has irregular profits or wants to reward shareholders without depleting its cash reserves.
More Information
Issuing bonus shares, also known as stock dividends, allows a company to preserve cash while still providing value to its shareholders. It can also make the stock more attractive to retail investors by lowering the price per share.
Tips
A common mistake is thinking bonus shares are always better for shareholders than cash dividends. It depends on the company's financial situation and the shareholder's investment goals.
Sources
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