Last week, Infosys announced its sixth bonus share issue since its listing in 1993. A study of the company’s bonus issue history reveals how it has aided wealth creation.
If an investor bought 100 shares at Rs 95 (Rs 9,500) in its IPO and held it till date, he would be holding 25,600 shares after the latest bonus. The value of these shares is Rs 5.05 crore (execluding dividends).
A bonus share issue signals a management’s confidence in the company’s prospects as it issues fresh shares to shareholders from its reserves. Infosys’s rival Wipro has been a bigger wealth creator for loyal shareholders after 10 bonus issues and two stock splits.
An investor in Wipro would be holding 960,000 shares, assuming he bought 10 shares in its IPO for Rs 100 per share in 1980. Today, the value of these shares would be Rs 56.11 crore (excluding dividends).
These examples emphasise the importance of staying invested in a company for the long-term to make the most out of it. But, traders argue that it is next to impossible to spot the prospective wealth creator in fickle business environment.
Source : ET