Definition
A Bonus Dividend is a special, additional dividend issued to shareholders on top of the regular expected dividends. Companies typically pay out dividends on a biannual basis, but in cases where there are surplus profits or significant corporate events, such as a takeover, an extra dividend may be issued. This extra payment is intended to reward shareholders beyond the ordinary distribution of profits.
Examples
Exceptional Profits: If a company experiences an exceptionally profitable year, it may decide to distribute an extra dividend to shareholders to share the wealth.
Takeover Situation: When a company is taken over by another firm, the acquiring company might issue a bonus dividend to reward the shareholders of the acquired company.
Asset Sales: When a company sells a significant portion of its assets and realizes a substantial gain, it might choose to issue a bonus dividend to distribute the profits to shareholders.
Frequently Asked Questions (FAQs)
What is the difference between a regular dividend and a bonus dividend?
A regular dividend is part of a company’s routine profit distribution to shareholders, typically paid semi-annually or quarterly. A bonus dividend, on the other hand, is a special, additional distribution made under extraordinary circumstances.
Why do companies issue bonus dividends?
Companies may issue bonus dividends to reward shareholders when they achieve exceptional profits, during special circumstances like a takeover, or after liquidating significant assets.
How often are bonus dividends paid?
Bonus dividends are not paid on a regular schedule. They are issued sporadically whenever the company has surplus funds or particular events justify the additional distribution.
Are bonus dividends taxable?
Generally, bonus dividends are taxed in the same manner as regular dividends. The specific tax implications can vary depending on the jurisdiction and individual tax situation.
Can any company issue a bonus dividend?
While any company can theoretically issue a bonus dividend, it is more common among well-performing companies or those undergoing significant corporate events that generate excess profits.
Related Terms
- Regular Dividend: The usual distribution of a company’s earnings to its shareholders, typically paid out quarterly or semi-annually.
- Special Dividend: A one-time dividend payment distributed due to exceptional circumstances, similar to a bonus dividend.
- Extraordinary Gain: Profits from unusual or infrequent transactions that are not part of the company’s regular operations.
- Shareholder Returns: The gains or benefits received by shareholders from owning shares in a company, including dividends and capital gains.
Online References
- Investopedia: Dividend
- The Balance: What Are Dividends?
- Corporate Finance Institute: Types of Dividends
Suggested Books for Further Studies
- “The Intelligent Investor” by Benjamin Graham - A book that covers the philosophy of value investing and the behavior of financial markets, including insights into dividends.
- “Common Stocks and Uncommon Profits” by Philip Fisher - Discusses investment strategies and includes information on evaluating dividends.
- “Security Analysis” by Benjamin Graham and David Dodd - Offers comprehensive insights into investment decision-making, including corporate dividends.
- “Dividends Still Don’t Lie” by Kelley Wright - Focuses on the importance and sustained relevance of dividends in investment strategies.
Accounting Basics: “Bonus Dividend” Fundamentals Quiz
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