Infosys Announces Bonus Issue, Increases Dividend
Infosys on Friday announced a 1:1 bonus issue for shareholders, the second time in last two quarters. India’s second largest IT outsourcer has also increased its dividend payout. But the bonus issue and higher dividend payout failed to stop a sell-off in its shares on Friday as Infosys’ fourth-quarter earnings disappointed the Street. But analysts say that the bonus issue and higher dividend payout bode well for investors in the long term.
Here is how it impacts Infosys shareholders
1) Infosys shareholders will get one share for every share they hold if the bonus issue gets approved. As a result, the number of outstanding Infosys shares will also double. In a bonus issue, investors get extra shares, but their holding in the company (in terms of percentage) remains the same.
2) The bonus issue will double the company’s equity base, but earnings remains the same. As a result, earnings per share (EPS) falls and hence the share prices typically correct substantially a day before the record date (called the ex-date) of the bonus issue.
3) A bonus issue is different from a stock split, in which the face value of shares falls by half (or in whatever ratio the company decides to split). In case of bonus issue, the face value does not change. So Infosys shares will continue to have a face value of Rs 5 per share post the bonus issue.
4) However, a bonus issue increases the liquidity of shares in the market and results in increased investor base.
5) Bonus issues may also result in higher dividends for investors. For instance, if Infosys gives Rs 40 per share dividend next year, investors who hold one stock now will get Rs 80 because of the bonus issue.
6) Bonus shares are issued from retained earnings. Infosys had retained earnings of Rs 54,191 crore as on March 31, 2015. Infosys’ share capital (Rs 572 crore) will be doubled and the similar amount will be deducted from the retained earnings.
7) Infosys has declared a final dividend of Rs 29.50 per share for the fiscal year FY15. With this, the total dividend given by the company in FY15 comes to Rs 59.50, which is 55 per cent of its full year earnings per share of Rs 107.88. Earlier, Infosys used to give a dividend pay-out of less than 40 per cent.
8) Sanjeev Hota of Sharekhan told NDTV that higher dividend pay-out and bonus issue is good news for investors as it increases overall return (capital appreciation and dividend income) for the investors. This indicates that the company is confident that it will be able to generate sufficient cash in the future to meet its dividend pay-out requirement, analysts say.
9) However, some analysts also say that higher dividend pay-out ratio indicate that Infosys does not have any other profitable opportunity to deploy its cash. As of March 31, 2015 Infosys had a cash balance of Rs 30,367 crore.
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Source:Ndtvnews
