How to become rich in stocks??? (9)

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:

• 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

• 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

• 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!