A bonus issue can seem like receiving free shares — and in a sense, it is. But understanding what a bonus issue actually does to the value of your holding helps you interpret these announcements correctly when a company you own shares in declares one.
Last reviewed:
Definition
A bonus issue (also called a capitalisation issue or scrip issue) is when a company issues additional free shares to its existing shareholders in proportion to their current holding, funded from the company's accumulated reserves rather than new cash investment.
Bonus shares are issued in a specific ratio. For example, a "1 for 2" bonus issue means for every 2 shares you currently hold, you receive 1 additional share at no cost. If you hold 1,000 shares, you would receive 500 bonus shares, giving you a total of 1,500 shares. The new shares are funded by capitalising the company's retained earnings or share premium account — internal accounting entries that transfer reserves into share capital.
A bonus issue increases the number of shares you hold, but does not in itself increase the total value of your investment. Because the total number of shares in the company increases by the same proportion, the share price typically adjusts downward after the bonus issue. For example, if you hold 1,000 shares worth ₦50 each (total value ₦50,000) and receive 500 bonus shares, you now hold 1,500 shares but the share price adjusts to approximately ₦33.33 — your total value remains approximately ₦50,000.
Bonus shares are credited to your CSCS account after the company's board formally approves the bonus and the registrar processes the allotment. To receive bonus shares, your original shares must be registered in your name in the CSCS before the record date. No action is required by you — the shares are credited automatically to your CSCS account.
The tax treatment of bonus shares in Nigeria is a specialist area. At the time of receipt, bonus shares may not be subject to immediate income tax as they involve no cash payment. However, when you eventually sell the shares, capital gains tax considerations may apply. Tax rules can change, and your specific circumstances matter. Always seek advice from a qualified tax adviser regarding the tax treatment of bonus shares in your situation.
A cash dividend distributes company profits to shareholders in cash, reducing the company's retained earnings. A bonus issue converts retained earnings into additional share capital — nothing leaves the company, and no cash is paid. From the shareholder's perspective, a cash dividend increases your cash position immediately, while a bonus issue increases your share count without changing the immediate cash value of your holding.
No. If your shares are registered in your name in the CSCS before the record date, bonus shares are credited to your CSCS account automatically by the company's registrar. No application or payment is required.
Not directly. The share price typically adjusts downward in proportion to the bonus issue, so the total market value of your holding remains approximately the same immediately after the issue. Over time, if the company grows and the share price recovers, more shares in a growing company may be advantageous — but this is not guaranteed.
The company's registrar processes the allotment and instructs the CSCS to credit the new shares to each eligible registered holder's account. This typically takes a few weeks after the bonus is announced and approved.
They are similar in economic effect but technically different. A stock split divides existing shares into a greater number of lower-priced shares. A bonus issue issues new shares from reserves. Both increase the share count and reduce the per-share price proportionally. The accounting treatment differs.
Because there are now more shares in issue, if the company's total dividend payout remains the same, the dividend per share decreases. However, companies that issue bonus shares often do so when they are growing, and may maintain or grow their total dividend payout — meaning the per-share dividend may not fall as much as expected.
The tax treatment of bonus shares is complex and depends on your circumstances and current tax rules. Seek advice from a qualified tax adviser regarding your specific situation. Shares Saver does not provide tax advice.
Important disclaimer
This article is for general information and educational purposes only. It does not constitute financial advice, investment advice, legal advice, or tax advice. The value of investments can fall as well as rise. Seek independent regulated financial advice before making any investment decision. Shares Saver does not provide financial advice.
Shares Saver lets you buy and own NGX-listed shares directly in your own name through regulated broker execution.
← Back to the full investing glossary