How Corporate Actions Affect Your Shares: Dividends, Bonuses, Rights, Mergers & More

📊 Understanding Corporate Actions – How They Affect You as a Shareholder

When you buy shares, you become a part-owner of a company. From time to time, the company may make decisions (called corporate actions) that affect your investment — either by giving you more shares, cash, or changing the value of your existing shares. Here’s how each one works:

🎁 1. Bonus Shares – Free Shares, Same Cake

Bonus shares are extra shares that a company gives you for free — simply because you already own some. It’s a way of rewarding existing shareholders without giving out cash.
Example: A 1:10 bonus means that for every 10 shares you already have, you’ll receive 1 extra share — at no cost.
So: If you own 1,000 shares, you will get 100 free bonus shares. Your total becomes 1,100 shares.
But there's a catch — the **share price will drop slightly** to reflect the new number of shares in circulation. This is called dilution.
Example: If the share price was KES 10 before, after the bonus, it might drop to around KES 9.09. Why? Because the total number of shares has increased, but the company's value hasn’t changed — it’s like cutting a cake into more slices.
💡 Analogy: Imagine you bake a cake and divide it into 10 pieces (shares). If you decide to divide it into 11 slices (after bonus), each slice is smaller — but you still have the full cake.
In the long run, **bonus shares can be good** — especially if the company continues to grow. Now that you own more shares, you may receive **higher total dividends** in future (because you’ll be paid per share).
Bonus shares also make your investment look bigger — which can help when selling later, especially if prices rise again.
🧠 Investor Tip: If a company issues frequent bonus shares but doesn’t grow profits or pay dividends, be careful — it could just be a way to create excitement without real value.

🎟️ 2. Rights Issue – Buy More, Pay Less

A rights issue is an offer from a company to its current shareholders, giving them the **first chance to buy more shares — usually at a discount** — before the shares are offered to the public.
Example: You own 500 shares of Company X. The company offers you the right to buy 100 more shares at KES 10 each — while the current market price is KES 20. You’re getting a deal!
💡 Why do companies do this?
To raise money — maybe for expansion, paying debts, or new projects — without taking a bank loan. It’s faster and involves loyal shareholders.
🔄 What are your options?
- ✅ Accept: Buy the additional shares at the discounted price and grow your shareholding.
- ❌ Decline: Do nothing — but your ownership % might reduce because others will buy more shares.
- 🔄 Sell Your Rights: If the rights are listed or tradable, you can sell them and earn some cash instead of buying more shares.
🧠 Investor Tip: A rights issue is like a loyalty reward. If you believe in the company’s future, buying more shares at a discount can boost your profits over time.
⚠️ Warning: Not all rights issues are good. If a company is struggling or frequently asking for more money, investigate the reason before investing more.
🍕 Analogy: Imagine you’re part of a pizza club. You already own 2 slices. The club says, “Buy more slices now at half the price, before we invite others.” You can buy more cheap slices, skip and keep what you have, or sell your invite to someone else!

💵 3. Dividends – Your Share of the Profit

Dividends are like a "thank you" from the company — a portion of its profits paid to you as a shareholder. Just like when a business owner shares part of the earnings with partners, listed companies share profits with investors.
Cash Dividend: This is real money sent directly to your bank account, M-Pesa. You can use it, save it, or reinvest it.
💡 Example: If you own 1,000 shares of Company A, and they declare a cash dividend of KES 1.50 per share, you will receive KES 1,500 in your account.
Bonus (Scrip) Dividend: Instead of receiving cash, you get extra shares for free. This increases the number of shares you own — and could earn you more dividends in the future.
💡 Example: You own 2,000 shares and get a 1:20 bonus dividend. You’ll receive 100 extra shares at no cost — making your total 2,100.
📅 Types of Dividends:
- Final Dividend: Paid at the end of the financial year after the company has confirmed profits.
- Interim Dividend: Paid in the middle of the year based on half-year profits — sort of like an early bonus.
- Special Dividend: A one-time payout, usually when a company has made extra profits, sold a big asset, or wants to reward shareholders.
🧠 Investor Tip: Many long-term investors focus on dividend-paying stocks for regular passive income. Some even reinvest the dividends to grow their wealth faster — this is called dividend reinvestment.
🍰 Analogy: Think of a company like a bakery. After selling cakes all year and making profits, the bakery decides to give back to the people who helped it grow — the shareholders. Some get cash (to buy more cake 🍰), and others get extra slices (shares) to enjoy in the future.

🤝 4. Mergers & Acquisitions – When Companies Join Forces

A merger happens when two companies agree to combine and become one bigger company — like two teams joining together. An acquisition is when one company buys out another — one becomes the owner.
As a shareholder, this affects you directly. Your shares may be:
- ✅ Converted: You get new shares in the merged company — the number and value may change.
- 💵 Bought Out: The company pays you cash for your old shares and you no longer hold shares after the deal.
- 🔄 Exchanged: You receive shares in the new company at a specific ratio (e.g., 3 new for every 5 old).
Example: You own 1,000 shares of Company A. It merges with Company B, and the new company decides that for every 10 shares of Company A, investors will get 7 shares in the new company. That means you’ll now own 700 shares of the merged entity.
🧠 Investor Tip: Mergers can be good or bad. If the new company is stronger, your shares might rise in value. But if it’s struggling, the share price could drop. Always follow merger announcements and read what analysts are saying.
🍲 Analogy: Think of two food kiosks merging into one big restaurant. You owned part of one kiosk. Now, you’ll own a piece of the new, bigger restaurant — but maybe a smaller piece than before. If the big restaurant does well, your smaller slice may still be worth more!

🧾 5. Stock Splits & Reverse Splits – Changing the Pieces, Not the Pizza

Forward Stock Split (e.g., 1:5): This means for every 1 share you own, you now get 5. However, the share price is divided by 5 too — so your total investment value stays the same.
Example: You have 100 shares worth KES 100 each (total = KES 10,000). After a 1:5 split, you now own 500 shares worth KES 20 each. Still KES 10,000 — just more pieces!
✅ Companies do this to make their shares more affordable and attractive to new investors.
Reverse Stock Split (e.g., 5:1): This is the opposite. For every 5 shares you had, you now get 1 — but the price increases 5 times to match. The total value stays the same.
Example: You had 500 shares at KES 2 each (KES 1,000). After a 5:1 reverse split, you now own 100 shares at KES 10 each — still worth KES 1,000.
⚠️ Reverse splits are sometimes used when a company’s share price has fallen too low, and they want to avoid being removed (delisted) from the stock exchange or improve investor confidence.
🍕 Analogy: Think of your investment like a pizza. In a split, you cut the pizza into more slices (forward split) — it looks like more, but it’s still the same pizza. In a reverse split, you stick slices back together into fewer, bigger ones — again, same pizza.

🔍 Where to Track Corporate Actions

📌 NSE Price List: See “Corporate Actions” section
📅 Track dividend closure and payment dates

📈 Impact Table

Action	Price Impact	Shares	Value Change	Ideal For
Bonus Shares	Price drops	Increases	Neutral	Long-term holders
Rights Issue	May drop temporarily	Optional Increase	Varies	Discount buyers
Cash Dividend	Small price drop	No change	Gain income	Income seekers
Scrip Dividend	Slight dilution	Increases	Neutral	Growth investors
Merger	Varies	Converted/Bought	Depends	Risk-tolerant investors
Stock Split	Price drops	Increases	Neutral	Entry-level investors
Reverse Split	Price rises	Reduces	Neutral	Delisting avoidance