Something interesting occurred during the shareholders’ meeting of HK & China Gas (003.HK) recently—a small shareholder was against HK & China Gas issuing bonus shares, citing the reason that it was an odd lot. On the other hand, there are also small shareholders who are in favour of bonus share issues.
Theoretically, a bonus share issue is equivalent to a stock split. In other words, splitting 10 shares into 11 is the same as giving one bonus share for every 10 shares.
Also, on the ex-dividend date, the share price will fall accordingly. If there is one bonus share issued for every ten shares, theoretically, the new share price should be the previous day’s closing price divided by 1.1. For example, a share that cost $11 will become $10 afterwards so that the total price remains the same.
This is also why small shareholders don’t like the idea of HK & China Gas issuing bonus shares. They want the company to issue higher dividends instead.
If you don’t like odd lots
Actually, if the small shareholder does not want to hold odd lots, there is a simple way to address that. What he can do is to sell a portion of his shares before the ex-dividend date, and buy them back (at a lower price) on the ex-dividend date. In this case, he would still own the same number of shares, and he could see the price difference as “higher dividends” received.
I personally like bonus shares issues, as share prices will be adjusted downwards after ex-date. But there is a high possibility that the share price will later return to its high before ex-date. Thus, I own the shares of Henderson Land Development Co Ltd (012.HK), which is another good stock under Lee Shau-kee, which issues bonus shares over a long term.
Some think that bonus shares are bad as investors end up with an odd lot. But in my opinion, odd lots aren’t bad. Holding an odd lot can “force” one to invest long-term and not sell. Those who dislike odd lots would want to sell their shares, but for a long-term investor, odd lots could contribute to dividend collection as well.
Therefore, I like odd lots and bonus shares, and I often choose dividend in specie (i.e. receive extra shares instead of cash), and hold dividend-in-specie odd lots over a long term.