ITC declares 1:2 Bonus

ITC, one of the profitable Indian company was started as Imperial Tobacco Company of India - way back in 1910. Its name was changed to the present "Indian Tobacco Company" or ITC in 1970. From the name it is obvious that ITC deals with tobacco. But ITC has been in the business of hotels, papers since 1972. Recently they forayed a big time into FMCG business under the brand Sunfeast and Aashirwad.

ITC declared bonus shares for existing share holders on 20th May 2016. Allotment of Bonus shares is one of the way companies reward their investors for their loyalty and trust reposed on them.

If someone buys 1000 shares of ITC today, it means he/she would get bonus shares of 500. Hence his total holdings become 1500. But the fact is stock prices fall after the bonus issuance. For instance, ITC is quoting today (23rd May 2016, 1.52pm) at Rs.346. The total investment would be (1000*346) Rs.3,46,000. Post bonus the share prices would get readjusted to around Rs.230. If you see the total value of the 1500 shares @ Rs.230, the value would again be Rs,3,46,000. But many investors panic (rather let down) when they see the price slide from Rs.346/sh to Rs.230/sh.

But over a long period BONUS shares works wonders.

For instance, in 1976, ITC shares were allotted at Rs.15 per share. Till today, ITC has rewarded its share holders with eight bonuses and one stock split. This is apart from regular dividends year on year.

Rs. 7500 invested in 1976 (at Rs.15 a share) would have got 500 shares. And if someone held these shares till date, today the shares would have multiplied to 2,07,360 Shares. At today's market price of Rs.346, the value of these ITC shares is Rs.7,17,46,560. (Rs Seven Crore Seventeen Lakhs). That's close to 10,000 times (9566 times to be precise)! The annual returns work out to 25.75%.

Thought it may not have been possible for everyone to invest in 1976. Even those who invested in Jan 2000 stand to gain phenomenally. 5000 shares bought for Rs.1,15,650, would have multiplied to to 1,50,000 Shares. At todays price of Rs.346, this would be worth Rs.5,19,00,000 (Rs.Five Crore Nineteen Lakhs Only!)

Apart from this, ITC has declared dividend at Rs.8.50 per share (850%). For those who invested in 2000, the dividend works out to Rs.12,75,000 (12.75 Lakhs).

Thought this would look very tempting, the secrete lies in holding this share for long period. Fro instance from 1976 to 2016 or from 2000 to 2016. Anything short of this might not reward the investors.

So stop worrying about stock price post bonus or your missed out to invest in 1976 or 2000. Invest today and stand to gain phenomenally in the decades to come.