Capital and income distributions
Capitalisation issues
Scrip issue: These increase the number of shares in circulation by reducing the price of the shares in direct proportion. There is no dilution of a shareholder's current percentage holding. This is a process to make shares which appear expensive more marketable
Similar to scrip issues (also known as bonus issues) and are essentially only bookkeeping exercises
Existing shareholders will not provide any additional capital and there is no extra funding received by the company, consequently there is no matching increase in the value of the company
The rationale underpinning of this corporate action is that reserves such as revenue reserves or share premium accounts are converted into share capital, that is they are capitalised. Any increase in share capital will be matched by a reduction in a reserve account
Make shares more attractive to investors
Improved marketability may also have a positive effect on a share price given that new investors may be attracted to the 'lower price'
Stock split
A corporate action where a company issues additional shares to existing shareholders. There is a reduction in the nominal value of each share in direct proportion to the increase in number of additional shares issued
Requires approval by the board of directors
No effect on a company' overall market value or shareholders' percentage ownership, although there would be a reduction in the market price, which would be in direct proportion to the new shares issue
Makes a company's shares more marketable while retaining reserves, resulting in the company's shares being more accessible to a broader spectrum of investors
Stock consolidation
The reverse of a stock split
Involves increasing the nominal amount of the shares
No effect on a company's market value or shareholders' percentage holding
There should be an increase in the market price of the share relating to the share reduction
Would happen when a company's share price has fallen to an unacceptable level and needs to brought back to an appropriate level
Overall result is a reduction in the number of shares in issue with a matching increase in the share price
Dividends
The amounts of money distributed by companies to shareholders based on an amount per share
Not the profit earned by a company, it is the amount that the directors decide to allocate to each share
Subject to income tax
During the year, the company may pay one or more dividends. Generally, in the UK at least, there are two dividend payments paid six months apart: the interim and final dividend
Shareholder approval is not required for the interim dividend, it is for the payment of the final dividend which is usually agreed at the AGM
Shareholders have no power to increase a final dividend that has been recommended by the directors but they do have the ability to reduce or cancel it
Special dividends are paid on a one off basis and are usually much larger than the usual dividend. They are used as a means of returning surplus capital to the shareholders and use be given to all shareholders in direct proportion to their holding
Deferred shares
Also referred to as founders shares
Part of the ordinary share capital
They are deferred in relation to the payment of the dividend, which may be suspended for up to ten years
During this period, even though the holder may receive no income, there may still be considerable capital growth
After the deferred period, both ordinary and deferred shares will become fungible
Although the holders of deferred shares do not receive dividends for a number of years, it is customary for these shares to have considerably increased voting rights
The deferred payments take priority over lower- ranked ordinary shares