A stock bonus, also known as a bonus share issue, is when a company distributes free additional shares to existing shareholders, proportional to their current holdings. Stock bonuses reward loyal investors without costing them cash and can signal management’s confidence in future growth. At Trading Smart Edge, we teach how to factor stock bonuses into your portfolio strategy.
How Stock Bonus Works
When a company declares a stock bonus, it issues new shares at no cost. In a 2-for-1 bonus, every shareholder receives one extra share for each share held, doubling their share count. The bonus does not change your ownership percentage or total investment value immediately, but it lowers the share price proportionally.
Why Companies Issue Stock Bonuses
Enhance Liquidity: More shares outstanding make trading easier.
Reward Shareholders: Loyal investors get extra shares without additional outlay.
Signaling Confidence: Management shows belief in strong future performance.
Types of Stock Bonus Ratios
1:1 Bonus: One new share for every share held.
2:1 Bonus: Two new shares for every share held.
3:2 Bonus: Three new shares for every two shares held.
Comparing Stock Bonus vs. Stock Split
| Feature | Stock Bonus | Stock Split |
| Share Count Change | Increases by bonus ratio | Increases by split ratio |
| Share Price Impact | Lowers share price proportionally | Lowers share price proportionally |
| Earnings Impact | No change in EPS (more shares) | No change in EPS (more shares) |
| Shareholder Benefit | Free shares as bonus | More shares via split |
This comparison shows why both stock bonus and stock split boost liquidity, but bonuses directly reward existing shareholders.
Practical Impact for Investors
Portfolio Adjustment: After a stock bonus, your holdings show more shares at a lower share price, but total value remains unchanged.
Tax Considerations: Bonus shares are typically non-taxable on receipt; tax applies on future sale gains.
Market Reaction: Stocks often see positive price movement post-announcement due to investor optimism.
How Trading Smart Edge Covers Stock Bonus
Our curriculum includes:
-Bonus Analysis Module: Strategies to trade around bonus announcements.
-Live Case Studies: Historical performance of major bonus issues.
-Strategy Workshops: Entry/exit planning when companies issue bonuses.
Here’s the complete guide on stock bonus by Trading Smart Edge.
Frequently Asked Questions
How does a stock bonus affect my earnings per share (EPS)?
A stock bonus increases share count, reducing EPS proportionally. Total company earnings remain the same, but EPS is recalculated on more shares.
Are bonus shares taxable when received?
No. Bonus shares are generally non-taxable on allotment. Tax applies when you sell the shares, based on capital gains rules.
