Dividends, bonus issues, stock splits and buybacks, in plain words

The short answer

A dividend pays you cash. A bonus issue gives you extra shares for free. A stock split cuts each share into smaller shares. A buyback is the company buying its own shares back. A bonus or split does not, by itself, make your holding worth more.

Throughout this page we use one made-up holding: you own 100 shares of ABC Limited, a fictional mobile company, at Rs 180 each. 100 times 180 is Rs 18,000. Watch what happens to that Rs 18,000 in each case.

Real prices move for many reasons every day. To keep the arithmetic clear, the examples assume nothing else changes. If shares are new to you, start with stock market basics.

Dividends: interim, final, record date and ex-date

A dividend is a part of profit a company pays to its shareholders in cash. An interim dividend is declared by the board during the year. A final dividend is recommended by the board and approved by shareholders at the annual general meeting.

Dividends are a choice, not a duty. Many companies pay none. A company that paid last year can pay less, or nothing, this year.

Two dates decide who gets the dividend:

• Record date: the date on which the company checks its list of shareholders. Whoever is on the list gets the dividend.
• Ex-date: the first trading day on which a buyer no longer gets the dividend. India settles most share trades on the next working day (T+1). Under T+1, the ex-date is generally the same day as the record date. So to be on the list, you need to have bought the share before the ex-date, so that it settles in your demat account by the record date. If the record date falls on a weekend or a market holiday, the ex-date is the trading day before it. Always check the exact dates the exchange announces for each dividend, because rules can change.

The dividend money goes to the bank account linked to your demat account. Dividends count as income for tax purposes, and tax may be deducted before payment in some cases. Check the current rules on the Income Tax Department website.

Worked example: a Rs 4 dividend

If ABC pays a dividend of Rs 4 per share, your 100 shares earn Rs 400. On the ex-date the share price tends to fall by roughly the dividend, so your total stays about Rs 18,000.

1. Before: 100 shares at Rs 180. Value: Rs 18,000.
2. Dividend: 100 shares times Rs 4 is Rs 400, paid to your bank account (before any tax deducted).
3. On the ex-date, the price tends to adjust down by about Rs 4, because the cash has left the company. In theory: Rs 180 minus Rs 4 is Rs 176.
4. After: 100 shares at Rs 176 is Rs 17,600. Add the Rs 400 cash: Rs 18,000.

So the dividend moves value from the share into your bank account. In real trading the price on the ex-date can be higher or lower than this neat Rs 176, because other news and orders move it too.

Bonus issues: free shares, same pie

In a bonus issue, the company gives existing shareholders extra shares for free, in a set ratio, for example 1:1 (one new share for every one held). Your share count rises, the price adjusts down, and your total value stays the same.

The company does not receive or pay any cash. It simply moves an amount in its accounts from its reserves (amounts built up over time, such as past profits) into share capital. The business itself is the same size after the bonus as before.

Worked example, a 1:1 bonus on your ABC holding:

1. Before: 100 shares at Rs 180. Value: Rs 18,000.
2. Bonus: one new share for each share held, so 100 new shares. You now have 200 shares.
3. Price adjusts: the same company is now split across twice as many shares, so the price tends to halve. Rs 180 divided by 2 is Rs 90.
4. After: 200 shares at Rs 90 is Rs 18,000. No change.

Under SEBI's rules for bonus issues announced from 1 October 2024, the bonus shares are treated as allotted on the working day after the record date, and they can be traded from the working day after that, two working days after the record date. The exchange's announcement for each bonus gives the exact dates.

Stock splits: smaller slices

In a stock split, each share is divided into more shares with a smaller face value, for example one share of face value Rs 10 into five shares of face value Rs 2. Your share count rises, the price adjusts down, and your total value stays the same.

Face value is the nominal value printed on a share in the company's records. It is not the market price. A split changes the face value; a bonus does not.

Worked example, a split from face value Rs 10 to Rs 2 on your ABC holding:

1. Before: 100 shares at Rs 180. Value: Rs 18,000.
2. Split: Rs 10 divided by Rs 2 is 5, so each share becomes 5 shares. 100 times 5 is 500 shares.
3. Price adjusts: Rs 180 divided by 5 is Rs 36.
4. After: 500 shares at Rs 36 is Rs 18,000. No change.

Companies often split shares when the price per share has become high, so that one share costs less to buy. The business is exactly the same. Like a bonus, a split adjusts EPS too: if EPS was Rs 12, after a 1-into-5 split it is Rs 12 divided by 5, which is Rs 2.40. That is why the P/E stays about the same, as explained in our lesson on the P/E ratio.

Buybacks in brief

In a buyback, the company uses its own cash to buy back some of its shares from shareholders, often at a fixed price. Taking part is your choice. The total number of the company's shares falls.

SEBI's buyback rules set out the routes a company may use, and they have changed recently. For example, buying back through the stock exchange in the open market was not allowed from 1 April 2025 to 31 July 2026, and the rules allow it again from 1 August 2026. A common route is the tender offer: the company announces a price and how many shares it will buy, and shareholders on the record date can offer their shares. If more shares are offered than the company wants, it accepts them in proportion.

Worked example, with made-up numbers. ABC offers to buy back shares at Rs 220 each through a tender offer. You offer all 100 shares. So many shareholders offer that ABC accepts only 20% from everyone.

1. Accepted: 20% of 100 shares is 20 shares.
2. Cash received: 20 times Rs 220 is Rs 4,400.
3. You keep: 100 minus 20 is 80 shares, still worth whatever the market price is.

The buyback price is not a promise about the market price later. Buyback rules and their tax treatment have changed more than once in recent years, so read the current rules on SEBI's and the Income Tax Department's websites before relying on any older article.

All four, side by side

This table compares the four corporate actions using the same holding of 100 ABC shares at Rs 180 (Rs 18,000), with nothing else changing.

Common mix-ups

The big mix-up is thinking a bonus or split gives you something extra. It changes the number of slices, not the size of the pizza.

1. "I got 100 free shares, so I am richer." After a 1:1 bonus the price roughly halves. Your total value is the same.
2. "I bought on the record date, so I get the dividend." Under T+1, the ex-date is generally the record date itself, so a purchase that day is too late. You need to buy before the ex-date.
3. "The price crashed on the ex-date." A drop of about the dividend, or a halving after a 1:1 bonus, is an adjustment, not a crash. Check the corporate action before reading a chart. See fundamental vs technical analysis.
4. "A split and a bonus are the same." Both increase share count and lower the price. A split changes the face value; a bonus uses reserves and keeps the face value.
5. "EPS fell after the bonus, so profit fell." The same profit is now divided by more shares. Read how to read quarterly results for how EPS is worked out.

Check yourself, and where to check

Three quick questions on the same 100 ABC shares at Rs 180, then the primary sources for real announcements.

1. ABC announces a 2:1 bonus (two new shares for every one held). How many shares will you have?
   Answer: 100 plus 200 is 300 shares. In theory the price becomes Rs 180 divided by 3, which is Rs 60. 300 times 60 is still Rs 18,000.
2. ABC pays a dividend of Rs 2.50 per share. How much do you receive before any tax deducted?
   Answer: 100 times 2.50 is Rs 250.
3. A split takes face value from Rs 10 to Rs 1. How many shares do you get for each one?
   Answer: 10 divided by 1 is 10, so 100 shares become 1,000.

Where to check: every dividend, bonus, split and buyback, with its record date and ex-date, is announced on the NSE website and the BSE website. The SEBI website has the buyback and listing rules. Your shares are held at a depository, and you can check your holdings through the NSDL website or the CDSL website. For tax on dividends and buybacks, read the Income Tax Department website.