Dividends, Splits, and Rights Offerings [Stock Market Basics]

In stock investing, there are two basic ways to earn returns — capital appreciation and dividends.

Capital appreciation is the increase in the selling price of stocks from the purchase price. For example, if you buy a stock for PHP10 per share, and the stock price rises to PHP12, you earn PHP2 in capital appreciation.

Dividends, on the other hand, are shareholders’ per-share profits received from a portion of a company’s earnings and as agreed upon by its board of directors.

Dividends may come in forms of cash, additional shares, other non-monetary properties, scrips or promissory notes, and liquidating dividends.

Sample Cash Dividend Notice

Cash Dividends

Among all forms, cash dividends are the most common in which shareholders receive cash profits on a specific later date provided that shares are held prior to the ex-dividend date.

If you purchase shares on or after the ex-dividend date (exclusion date), then you’re no longer entitled to the latest cash dividends.

Record date is simply the date when the company looks into its records or books, and hence, finalizes its list of shareholders entitled to receive cash dividends.

Payment date is the actual date of dividend payment in which the company disburses cash and sends it to shareholders. Interestingly, these three important dates also apply to almost all forms of stock dividends.

Sa madaling sabi, kung bumili ka ng shares sa mismong araw ng ex-dividend or kinalaunan pa, HINDI ka na makatatanggap ng kakadeklarang dibidendo. Sa kabilang banda naman, kung kamakailan lamang ay nagmamay-ari ka ng shares at ibinenta mo sa mismong araw ng ex-dividend o kahit kinalaunan pa, asahan mong KASAMA ka pa rin sa makatatanggap ng nasabing dibidendo.

Stock Dividends and Splits

Aside from cash, stock dividends are also sometimes issued by publicly-listed companies. In simple terms, stock dividends are additional shares issued to existing shareholders.

Accordingly, if issued are less than 25% of the total number of its outstanding shares, then they are actual stock dividends. If bigger however, these come in a stock split. Stock splits come in two more forms – forward and reverse stock splits.

A (forward) stock split is a corporate decision in which existing shares are divided into multiple shares for liquidity and market appeal purposes. Despite increase in number of shares by a specific multiple, the market value of shares remains intact and the same as pre-split value.

Halimbawa, ang MRSGI ay may outstanding 20M shares sa merkado at naibebenta bawat share sa halagang PHP5. Sa pagtataya, ang kabuuang market cap nito ay 20M shares x PHP5 = PHP100M. Ngayon, napagkasunduan ng board of directors na magkaroon ng stock split na 2-for-1(100%). Matapos ang stock split, madodoble ang outstanding shares at magiging 40M shares x PHP2.5 = PHP100M (pa rin). So, hindi naapektuhan ang market capitalization nito.

On the other hand, a reverse stock split results in a decrease in number of a company’s outstanding shares, hence an increase in its share price. Both forward and reverse stock splits do not necessarily affect the market value of shares, rather, as already stated, the stock’s liquidity and market appeal brought by a change in market price. Existing shareholders benefit from either split.

Property Dividends

Less common than cash or stock, property dividends come in non-monetary forms such as physical assets and other company inventories. Current market value of these assets is considered and recorded during the issuance to individual shareholders.

Companies issue property dividends for a number of reasons including manipulation of taxable and declared income, non-availability of enough cash, and avoidance of stock dilution.

Scrip Dividends

Aside from properties and other physical assets, scrips may also be issued by companies to shareholders when they run short on available cash or fund. Scrip dividends are simply promissory notes or debt acknowledgment receipts payable to shareholders at a later date.

Liquidating Dividends

Also known as liquidating distributions, liquidating dividends are normally issued by companies as a precursor to shutting down the business operations or during their partial or full liquidation. As compared to regular distributions that are derived from the earnings or profits, liquidating dividends are issued from the capital base.

Stock Rights Offerings

Technically, stock rights offering entitles existing shareholders an option or right to purchase additional shares or increase stock position based on a certain percent or proportion at a discount price.

While advantageous for existing shareholders because of the discount, stock rights offerings may also be observed as a move of financially struggling companies, and hence flooding the market with more shares may result in dilution of the value of available shares. It is hence advised that shareholders avail the rights so to avoid this dilution.

2023 MRSGI Stock Investment and Dividends Update

MRSGI might not have performed well during the pandemic and incurred millions of losses, but it has been recovering.

It posted a net income of PHP60.04 million for the first three months of 2023, up by 80.2 percent from PHP33.30 million a year earlier, due to robust operating margins and solid revenues. Even last year (2022), its net income reached already PHP917.3 million amid the full reopening of businesses, a turnaround from the PHP318-million net loss it booked in 2021. 

With the good news, stock investors were informed early this year about the cash dividends of PHP0.06 per common share (a total of PHP196 million for all stockholders) on a record as of April 14, 2023). 

Dividends, Splits, and Rights Offerings [Stock Market Basics]
MRSGI Cash Dividend for 2023
The photo shows that I earned a passive income of PHP2,025.60 (less the withholding tax of PHP202.56) from my stock investment. It’s good I didn’t get emotional and impulsive dumping my 33,000+ shares of MRSGI stocks when the stock market went bloody. But I am still hoping that sooner or later, I’ll be able to profit from price appreciation. 

Metro Retail Stores Group, Inc. (PSE: MRSGI) is a publicly-listed Philippine company engaged in buying, selling, and trading goods, wares, and merchandise of all kinds, targeting low to middle-income consumers. It is one of the leading retailers in the country, with a market-leading position in Visayas and a growing presence in Luzon.

It caters to the public through its three complementary retail formats – a supermarket format operated under Metro Supermarket and Metro Fresh N Easy brands, a department store format under Gaisano Metro Department Store and Supermarket brands, and a hypermarket format under the Super Metro brand. As of this writing, it has 62 stores nationwide. 

Read also:

Stock Certificates at Scripless Trading. This short article explains why online stock investors and traders do not usually receive stock certificates (scripless trading) and how to get one from COL Financial, an online stockbroker.

Iba’t ibang Uri ng Stocks. This short article identifies and describes the different types of company stocks, including common, preferred, growth, blue-chip, defensive, and value stocks.

Bakit Pabago-bago (tumataas at bumabagsak) ang Presyo ng Stocks? This article targeted to the super beginners in stock investments briefly explains the law of supply and demand that affects the fluctuating prices of stocks in the market. 

This article was first published on 01 May 2018 and updated on the date indicated for the most recent and accurate information.

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