Dividends vs. Bonus Shares: What They Really Mean for You
When you buy shares, you’re not just watching the price go up and down; you're a part-owner of a business. And sometimes, that business wants to reward you. It can do this in two common ways:
Dividends (cash payment)
Bonus shares (extra free shares)
What Are Dividends?
Dividends are cash payments made to you just because you own shares in a company.
When a company makes profit and wants to share part of it with its shareholders, it pays out a dividend.
Example:
Imagine a company says it will pay ₦2 for every share you own.
If you have 1,000 shares, you’ll get:
₦2 x 1,000 = ₦2,000 (before tax)
This money is sent to your brokerage or bank account. You didn’t sell anything or do extra work; it's simply a reward for being an investor.
Quick reminder: In Nigeria, the government takes 10% as tax from your dividend before the money gets to you.
Why Many Investors Like Dividends
It’s real money you can use immediately.
You can spend it, save it, or buy more shares.
It’s proof that the company is making enough profit to share.
What Are Bonus Shares?
Bonus shares are free extra shares the company gives you instead of paying you cash.
Let’s say the company has made some profit, but instead of giving you money, they decide to increase the number of shares you own.
Example:
A company gives a 1 for 5 bonus. That means:
For every 5 shares you have, they give you 1 extra.
So if you own 1,000 shares:
1,000 ÷ 5 = 200 extra shares
You now have 1,200 shares. You didn’t pay anything for the extra 200, they're just a gift.
But here’s what many people miss:
The share price usually drops after a bonus.
So even though you have more shares, the total value of your investment may not change much at first.
Bonus shares don’t give you cash today but if the company grows, your larger number of shares could be worth more tomorrow.
Which One Works Best for You?
If you want cash now, dividends are what you’re looking for.
If you’re okay with waiting and believe the company will do well, bonus shares can grow your wealth over time.
Some investors even use their dividends to buy more shares giving themselves a “bonus” in their own way.
Understanding What "Bonus" Really Means
The word “bonus” sounds like something extra or special but in reality, it’s not extra money.
For example:
If a company gives a 1-for-1 bonus and you had 1,000 shares at ₦100 each, you’ll now have 2,000 shares, but the price might drop to ₦50.
Same total value: ₦100,000 before and after.
What matters is the company’s future. If it keeps growing, your investment grows, too, regardless of whether you got dividends or bonus shares.
Example:
GTCO once gave a 1-for-5 bonus:
If you had 5,000 shares, you got 1,000 extra shares. That’s more ownership in the company but no cash.
Zenith Bank paid ₦3.20 per share in dividends:
If you had 1,000 shares, you received ₦3,200 (before tax). That’s real money in your pocket.
Key Takeaways:
Both dividends and bonus shares are rewards—just in different ways.
Dividends give you cash now.
Bonus shares increase how much of the company you own.
One helps you spend today, the other helps you grow tomorrow.
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