Companies adopt the following 5 ways to pay its share holders.
- Capital gain – When a person/firm buys shares of a company at lower price and sells them at higher price then the difference of selling price and buying price is one’s profit. This profit/capital gain is the major means by which companies pay to its shareholders.
- dividend – At times, companies pay back a part of the profit earned to its shareholders. This amount is some percentage of the face value of a share. A company which pays good dividends is considered a safe bet in economic down time.
- Bonus share – When companies want to reward its shareholders but do not want to spend cash then companies give additional shares to its share holders. These bonus shares can be regular equity shares or preferential shares. Market capitalization of a company increases when it gives bonus shares to its shareholders.
- Buyback offer - In this option, share holders may opt to return the shares of a company at a predetermined price or investors offered price. Shareholders make profit with the increase in valuation of company. Recently, HUL offered buy back of its shares to its share holders.
- Part payment of face value – Companies pay out part of the face value of its shares to its share holders to reduce its market capitalization. Of course, shareholders earn additional income. For example recently Castrol is giving away Rs 5 per share to its share holders. This option is least used by companies.