Must read : The Key to Life Success - The Two Marshmallow Theory
and understand delay gratification and self-control!!!
Read? How to become rich in stocks??? (8)
Are you very sure that you fully understand Retained Earning???
If not, please go back to read again before continue ......
On the right: S-REIT Young Bunnies and their high yield
On the left: Growth Young Bunnies and their low yield
Carrot is the size of Retained Earning.
Marshmallow is the dividend.
Kids are young investors or young bunnies.
What the young bunnies may not know about the REAL effect of the Giant Carrot?
The Giant Carrot cannot keep growing forever and ever!!!
One day, the farmer will come and ...
CHOP, CHOP, CHOP CHYE TOW!!!!
and chye tow become
BONUS ISSUE!!!
This is where S-REIT bunnies may never smell hor!
Why???
Bonus Issues are made out of a company’s share premium or distributable reserves, such as accumulated profits or retained earnings which are profits built up over the years not paid out in dividends but retained in the business. This transfer from the company’s reserves into paid-up share capital is thus known as capitalisation of reserves where an increase in shareholders’ equity is offset by a fall in the capital reserves or retained earnings. Since no new funds are raised in a Bonus Issue exercise, the company’s net worth or equity as measured by the share capital and reserves remains unchanged.
In a Bonus Issue, the nominal value (where applicable), also known as face or par value of the company’s shares does not change.
Companies pursue Bonus Issue for the following reasons:
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To offer existing shareholders part of their respective interests in the undistributed profits retained in the company in the form of shares instead of cash distribution so as to conserve cash for business operations or expansions
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To promote more active trading of the company’s shares in the stock market through a reduction in the market price per share within a more reasonable range as a result of the enlarged share capital base so that they are within the reach of the retail investors at large who might otherwise give the stock a miss due to its initial high price levels
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To serve as a strong indication to the stock market of the company’s financial strength through its continued ability to service its larger equity base and future growth prospects, thereby possibly enhancing the credit standing and hence borrowing capacity of the company
In short, company distributes part of past years undistributed dividend at one go in the form of bonus issue. For those shareholders who are entitled to receive bonus issues, they are so shiok. Right?
Now, here is the real life of Uncle8888's bonus issue ...
Read? Kep Corp : FY10 Report Card
Bonus issue to shareholders of one bonus share for every 10 existing shares.
Bonus issue is actually the deferred stock dividend that can be en-cashed any time by the shareholders at their will.
For example,
If Uncle8888 wishes to en-cash his bonus issue at Friday Kep Corp's buying price at $10.90 , the additional dividend yield for his Kep Corp bought at 18 Sep 2001 is 83% over 10.8 years or 7.7% p.a.
Delay Gratification pay off!!!!
Young Bunnies, what you may not know about Retained Earning may be limiting you from your investing goals!
Posts
there is still not enough materials on identifying stocks like your keppel and sembcorp. what are the upcoming ones.
ReplyDeleteseems the returns on DBS isnt that fantastic compare to them. so how do an investor uncover another keppel
The Moral of the Story ...
DeleteDo not look at yield only; but look at BOTH yield and dividend payout ratio as one entity to decide whether the yield is good enough for delay gratification.
Good advice for long-term investors. And also reits investors have no chance of a "Bonus issue'. Ah........ But when you first started investing in Keppel Corp, i don't think you can see that far. When did you start to see that far and why? Please ignore my questions if you don't like to answer.
ReplyDeleteNo chance of Bonus Issues from Keppel lah!
Actually, I got the stock tip from Lau Lee (You know who. Right?) when he said Singapore should only have Four Big Bank!
DeleteI hooted the two smaller bank Keppel and Tat Lee Bank and huat from them and huat even more when Keppel-Tat Lee Bank was acquired by OCBC years after that.
I also huat big from SPC.
So it was Keppel Branding and its multi-industries nature of Keppel Corp (should be safe. right?) that leaded me to buy after Sep 11 WTC Attack; BUT, it was not after some sleepless nights of "Do" or "Do Not".
I still believe buying at the right time is not the most difficult thing to do as bear market will always be around the next corner. I believe this is the most difficult to do.
Read? Investing Made Simple by Uncle8888 (16)
Ah...Sep 11 WTC Attack; . i was fooling around doing quick turn around trading. -even with NOL. i remembered trading NOL at 70 cents. It did go lower. My point is i were crazy to think trading in Bear market is better than in Bull market. Why? But actually it should be buy in Bear market and hold as long as you can before selling in the market you want or happy with. Ha! Ha! - Trading in Bear market. How "foolish" can i get.
DeleteTo me, bonus issue is just to transfer retained earnings to share capital. It does not increase earning. it does not increase your ownership of the company, either. You can get better yield, only because you have sold it, but it will reduce your ownership in the company at the same time.
ReplyDeleteTo me, retained earning is important because it shows that the company can generate enough earning from its operations rather than from its shareholders to grow all the way to what it is today. In a way, it proves that the company is quite a success til today.
Bonus issue is basically for corporation to transfer part of its wealth held in custodian from the corporation's hand to the hands of its shareholders and let the shareholders to decide for themselves whether to stay in the game or not.
DeleteNo good meh?
I don't see how the bonus issue transfer anything from the corporation to its shareholders. Can elaborate more? What I see is that nothing left the corporation in a bonus issue. You have more in terms number of share, but not more in ownership of the company. you don't get more dividend, either.
Delete