Companies sometimes do things that change what shareholders receive or how many shares they hold. Three of the most common are dividends, bonus issues and stock splits. Posts online often make them sound like free money. Let's see what really happens.
Dividend
A dividend is when a company pays out part of its profit to shareholders in cash. If our made-up Sunrise Biscuits Ltd declares a dividend of ₹5 per share and you own 100 shares, you receive ₹500 (before any tax).
To get it, you must own the share on the record date the company announces. On the day the share starts trading without the dividend (the ex-dividend date), the price usually drops by about the dividend amount, because that money is leaving the company.
Companies don't have to pay dividends, and a dividend paid last year may not be paid this year.
Bonus shares
In a bonus issue, the company gives existing shareholders extra shares for free, in a ratio. In a 1:1 bonus, you get 1 new share for every 1 you hold.
Example: you own 100 shares at ₹400 each, worth ₹40,000. After a 1:1 bonus, you have 200 shares, and the price adjusts to about ₹200. Your holding is still worth about ₹40,000. Nothing new was created; the same company is just cut into more pieces.
Stock split
In a stock split, each share is divided into smaller shares. If a share with a face value of ₹10 is split into 5 shares of ₹2 face value, 100 shares become 500, and the price adjusts to about one-fifth. Again, the total value stays about the same.
So why do companies do this?
Bonus issues and splits make each share's price lower, which some companies feel makes it easier for small investors to buy. A dividend shares profit with shareholders. None of these, on their own, tell you whether a share's price will go up later.
If a post says "Bonus coming, buy now!", remember: companies announce these through official exchange filings. You can look them up yourself, as explained in What is an exchange filing?.