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Bhutan Insurance Ltd (BIL) declared a 20% dividend as well as 1:1 bonus share on its 14th AGM on 24/03/2023.

Little cash dividend won’t hurt. But more than its cash dividend of 20%, I welcome its bonus shares.

This makes sense from BIL perspective as well as from that of investors. Let me explain.

BIL Share Price is 10x of its Face Value

BIL share price is Nu.100 at the time of writing this post. This means, it’s trading 10x its nominal value or at a premium of Nu.90.

When a cash dividend, bonus issue or equity ownership are based on the face value, such a high market price makes less sense.

The stock split can also meet the same objective. But the stock split will send a negative signal on financial position of the company.

BIL is financially sound. Its net profit for the year 2022 is Nu.248 million; an increase by 48% from last year.

Give Fair Returns on Investment Fund

The EPS of BIL is Nu.8.28 this year. This means BIL earns Nu.8.28 profit per Nu.10 share. It’s 82.8% profit on face value.

But if we consider the market price of the shares, BIL is earning Nu.8.28 per Nu.100 investment. 8.28% is not so attractive.

In 20% dividend, a person having 10,000 shares get Nu.20,000. When the price is lower, dividend will be more. The same amount gets more no. of shares.

When shareholders have more shares, even smaller dividend rates would give more dividend income.

Give True Market Valuation of Shares

One of the important indicators to know how much BIL earns compared to what investors actually paid for is P/E ratio.

The P/E Ratio of BIL is 12 (100/8.28). This means BIL earns Nu.8.28 per Nu.100 of investment.

It also means BIL is valued at 12x of its current price. Decreasing an EPS will increase this value.

To Let BIL Shares Become Marketable

This is one of the main reasons why I welcome this BIL bonus share. It is a good method to lower the market price without getting blamed for not rewarding investors.

The outstanding shares in the market will be increased without changes in your ownership ratio. Will increase retail investors’ participations.

Shares of companies like BFAL and BCCL of our stock market are mostly inactive due to this reason.

When number of outstanding shares in the market is more, there will be less price volatility like in the case of BNBL shares. It’s good especially for new investors.

What do you think of this BIL Bonus Issue? Did you welcome this idea? Please share your views in comment.