What are bonus shares?
Bonus shares are extra shares given by a company to its shareholders free of charge. They are often given out instead of dividends.
Where have you heard about bonus shares?
If you're a shareholder in a company, you might have been given bonus shares before. They're normally calculated on the amount of shares a shareholder already owns. A bonus share issue often happens as the company announces a book closure date.
What you need to know about bonus shares...
Companies issue bonus shares for a number of reasons. One is to capitalise on retained earnings and restructure company reserves. If a company is running low on cash, it might issue bonus shares so that shareholders can sell their shares for money.
Bonus shares are also issued to increase a company's equity base. The fewer shares a company has, the more expensive they are. Companies can decrease price-per-share by issuing bonus shares to shareholders, thus encouraging new investors to buy into the company.
Find out more about bonus shares...
Bonus shares are given out by companies instead of dividends. Read our guide to dividends here.