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Friday, January 27, 2023

1:3 Stock Bonus Impact: Dividend Paying Stocks Return 34% in 2022

REC Ltd, a central Maharatna public sector company, is a subsidiary of Power Finance Corporation Limited (PFCL) and one of the dividend paying stocks listed on Dalal Street. In the year 2022, this state-owned NBFC declared two interim dividends $6 per capital share and $5 per share of capital while paying a final dividend of $4.80 per share of capital, which means that PSU shares paid three dividends in 2022 and the total dividend paid in the past year was $15.80 per share of capital ( $6 + $5+ $4.80).

REC Dividend History

REC Ltd paid the first interim dividend of $6 per share in February 2022 and an ex-dividend was negotiated for it on February 15, 2022. Subsequently, it granted a complementary dividend of $4.80 per equity share and traded ex-dividend for this $4.80 per share dividend on July 12, 2022. Maharatna PSU again announced an interim dividend of $5 per share and an ex-dividend was negotiated for the same on November 7, 2022. Then, the PSU NBFC gave $15.80 per dividend share to its shareholders who remained invested in the scrip throughout 2022.

REC Dividend Yield in 2022

At the beginning of 2022, REC’s share price was trading around $100 (closed at $100.35 on December 31, 2021) while ending at 116.50 each on December 30, 2022 (last trading day of last year), amounting to 16.50 percent. However, if we add the dividend yield of the stock in 2022, it is also around 16 percent, since it gave $15.80 each of dividends in 2022 against the initial year price of $100 per share.

Therefore, REC’s return on shares and dividend yield were around 16%, giving shareholders an annual return of around 32% in 2022.

Bonus Fee Impact

However, for the information of readers, REC Ltd also announced bonus shares in 2022. It declared bonus shares at a ratio of 1:3 in 2022 and traded ex-bonus shares for the same on August 17, 2022. Those who held REC shares for the full year 2022, its shareholding skyrocketed by one-third of its shareholding and became 4/3 times its original shareholding in early 2022 after the free share issuance in August 2022. Then , they actually get $6.67 [ 5 x (4/3)] Interim dividend in November 2022.

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Therefore, the total dividend received by REC shareholders who own the shares during all of 2022 is $17.47 ( $6 + $4.8 + $6.67) per share of capital. So, comparing REC’s share price at the beginning of 2022, REC’s annual dividend yield is around 17.50 percent.

Adding the return on shares of 16.50%, REC’s net return in 2022 stands at 34% (16.50 return on shares + 17.50 yield on dividends).


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