Equity eyes bonus shares in place of forgone dividends

Equity Group is eyeing issuing bonus shares and stock splits in place of forgone dividends and retained earnings.

The Group which held its Annual General Meeting (AGM) on Wednesday forewent issuing dividends over the last two years as a capital preservation stance.

The lender has nevertheless resumed issuing dividends as of the end of 2021 having proposed a first and final dividend of Ksh.3 per share for the period.

According to Equity Group Managing Director James Mwangi, the move to issue bonus shares or stock splits will be pegged on the performance of Equity’s stock at the Nairobi Securities Exchange (NSE).

“Whenever we retain significant amounts, that is capitalized and given to shareholders in the form of shares and that’s why a share in 2000 is now equal to 600 shares. That increase is a result of splits and bonuses which is the capitalization of retained earnings and forgone dividends,” he said.

“With the market providing the right price, the board would consider a bonus share issue like it has in the past.”

Besides retaining earnings as capital cushioning, the bank says it has deployed retained earnings to fund the expansion of its operations in the region.

“For 25 years, we have sustained a 10-fold growth every five years generating splits and bonus shares out of the retained earnings that have funded that growth,” added Dr. Mwangi.

Though issued before, bonus share issues and stock splits have been a rarity in Kenya.

Data from the Capital Markets Authority (CMA) shows the last bonus share issue at one share for one was by Car and General in January this year.

Other bonus share issues between 2013 and present have been by Kenya-Re, Crown Paints, NSE and Diamond Trust Bank (DTB).

The last stock split meanwhile was by Kenya Airways at the ratio of 1:20 with other issuers being Kenya Power, KCB, Sasini and Centum.

Equity issued its own stock split in February 2009 at the ratio of 10 shares for every single share held.

Bonus share issues and stock splits are usually deployed in increasing the pool of shares available for a listed company while offering new entry points for new shareholders by lowering the overall share price.

Stock splits do not however affect the market capitalization of a stock.

Equity Group has recently grown its retained earnings significantly having held-off issuing dividends in both 2019 and 2022.

Retained earnings for the Group stood at Ksh.158.1 billion at the end of 2021 from Ksh.118.8 billion previously.