Greig Lindo, senior trader at JMMB Ltd, says that while investors will see no immediate gain from share splits and bonus offers currently prevailing on the market, they can look forward to returns arising from increased trading which the offers are intended to engender.

Concerned investors are also being assured that there are no immediate tax implications arising from the new issue now swelling their portfolio.

“There are no immediate tax implications on the issuance of shares through a bonus offer or share split,” Lindo said.

The senior trader cautions, however, that later, any income/gains derived from the trading of these shares on the market will be subject to corporate income tax for companies.

“For individuals, no personal income tax is applied. Any dividend paid on the shares will be subject to the withholding tax rate on dividends, where applicable,” he explains.

A number of companies such as Jamaica Teas Limited ( JAMT, HoneyBun (HONBUN), RJR and PanJamaica Limited (PJAM) have done stock splits in 2016, with GK planning to do a three-to-one split in August.

Jamaica Producers has also recently announced its intention to issue bonus shares in early July.

RJR also did a bonus issue as part of its merger with the Gleaner.

Lindo explains that the bonus issue or stock split will effectively result in an increased float of shares on the market and is accompanied by a proportional adjustment in price.

“The value of the shareholder’s equity remains the same, however investor perception could be influenced by the decrease in the nominal price per share and improved liquidity for the trading of the company’s stock,” he notes.

A split and a bonus offer are two different exercises.

“A stock split is where a company divides a share into a specific number of new shares, therefore, for example, where a company announces a ten-to-one split, the investor who held 1 share would hold 10 shares after the split,” Lindo explains.

He points out that there is no impact on the share capital of the company although the market price of the stock will be reduced in proportion to the newly issued shares.

“So for example, if the investor held one share at $10.00, they would now own 10 shares at $1.00 each in the case of a 10:1 split.”

Comparatively, the bonus issue is where a company gives new shares to its current shareholders in a specific ratio of the investor’s current shareholding in the company.

“For example, a company may give five bonus shares for every one share held. The company can execute this transaction by choosing to convert funds on its capital reserve to share capital and issue new shares in lieu of paying a dividend,” Lindo outlines, noting that the transaction has “a neutral impact on shareholders equity as the increase in share capital is accompanied by a simultaneous and equivalent drop in capital reserves.”

The investor will be issued the new shares in addition to their current shareholding.

Individuals can begin trading through their brokers once the additional shares are credited to their depository accounts.

Note that the market price of your shares will be adjusted on the effective date of the split or bonus.