When a publicly-traded company issues corporate action, it is initiating a process that will bring actual change to its stock. By understanding these different types of processes and their effects, an investor can have a clearer picture of what a corporate action indicates about a company's financial affairs and how that action will influence the company's share price and performance. This knowledge, in turn, will aid the investor in determining whether to buy or sell the stock in question.
Corporate actions are typically agreed upon by a company's board of directors and authorized by the shareholders.
Bonus shares come from distributable equity but in the form of stock instead of cash. A stock dividend of 10%, for example, means that for every 10 shares owned, the shareholder receives an additional share.
If the company has 1,000,000 shares outstanding (common stock), the stock dividend would increase the company's outstanding shares to a total of 1,100,000. The increase in shares outstanding, however, dilutes the earnings per share, so the stock price would decrease.
Rate of Tax Deduction: 5%
CDC has introduced an e-dividend depository system that offers convenient access to information regarding the credit of all cash dividends. This system provides transparency and ensures you are promptly informed about the status of your dividend payments. To access the e-Dividend depository system, we kindly request you to register yourself on CDC's e-services platform.
Please follow the steps below to complete the registration process:
By registering for CDC's e-services, you will gain access to comprehensive information about your dividend payments, including details of credit and any reasons for non-credit, if applicable.
The cash dividend is issued either on a quarterly, bi-annually, or yearly basis. When a dividend is declared and issued, the equity of a company is affected because the distributable equity (retained earnings and/or paid-in capital) is reduced.
For each share owned, a certain amount of money is distributed to each shareholder. Thus, if an investor owns 100 shares and the cash dividend is 0.50 per share, the owner will receive 50 in total.
Rate of Tax Deduction
Calculation of Cash Dividend
Where a company had announced 17.5% cash dividend
= Face Value x % of dividend announced; = Rs. 10/- x 17.5%; = Rs. 1.75
= Dividend amount x No. of shares; = Rs. 1.75 x 1,000; = Rs. 1,750.00
= Dividend amount – 12.50% Tax; = Rs. 1,750.00 – 218.75; = Rs. 1,531.25
Zakat Deduction (in case if you have not provided a zakat exemption certificate)
= Face Value x 2.5% Zakat x No. of Shares; = Rs. 10 x 2.5% x 5000; = Rs. 1,250.00
In order to raise additional funding may a company issue right shares to the existing shareholders. A right issue, therefore, allows shareholders to buy shares of an issue before it is offered to the public usually at a discounted price. The new shares are usually issued in proportion to the existing investors’ holdings.
A company implementing a rights issue is offering additional or new shares to existing shareholders to finance their new expansion projects or to meet working capital needs.
The existing shareholders are given the right to purchase or receive these shares in proportion to their respective shares holding.
There are two ways to handle the Right shares:
Selling the Right Shares
You may sell Right shares in the market and receive 100% gain by making any further payment to the company against the subscription of Right shares.
Subscribing the Right Shares
You may subscribe by making a payment to the company against the subscription of Right shares. There are three options for subscribing to the Letter of Rights:
1. Subscribe it by yourself
If you prefer to subscribe to the Letter of Rights independently, kindly request the "RSR" Right Subscription Form from Alfalah CLSA Securities. We will promptly email you the Right Subscription Form to your registered email address. Once received, you will need to submit the RSR along with the subscription amount to the designated bank branches.
2. Subscribe through Alfalah CLSA Securities
Alfalah CLSA Securities offers a convenient facility for subscribing to the Letter of Rights on behalf of our valued clients. Upon receiving your request, we will subscribe to the Letter of Rights by debiting the subscription amount from your trading account. We will then submit the RSR along with the subscription amount to the designated bank branches. Please note that this facility is valid until three working days prior to the last subscription date.
3. Subscribe through IBFT:
You also have the option to subscribe to Right shares through IBFT (Interbank Funds Transfer). To do so, please log in to your Internet banking portal and select "Bill Payment". Proceed by choosing "1BILL Invoice/Voucher Payment" and make the payment by entering the "1Bill Payment ID", which is specified in the Right Subscription Request Form.
These options provide you with the flexibility and convenience to proceed with the subscription process for the Letter of Rights.