Bonus issue is extra shares given to shareholders free of cost. A bonus issue is a stock dividend, allotted by the company to reward the shareholders. These allotments typically come in a fixed ratio such as 1:1, 2:1, 3:1 etc. For a 3:1 bonus issue, shareholders will receive 3 shares free for every 1 share held. Stock Split divides the existing outstanding shares of the company into multiple shares. In a stock split in the 1:3 ratio, for every 1 share held, it will become 3 shares. The total market valuation of all the shares in totality held by the shareholder in both the cases will remain the same as before as share price will be reduced in the same ratio. So technically they won’t make much of a difference to an existing shareholder. Now it becomes interesting! In case of Bonus Issue there is NO change in the Face Value of a stock. But in case of Stock Split the Face Value reduces in the same ratio. When the company declares dividend, it is always declared on Face Value. Hence, a Shareholder will get double dividend as compared to the one in case of a Stock Split. Hence, Bonus is more rewarding than a Stock Split.
