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Cash dividends are profits paid to shareholders. Dividends on common stock are optional, but they are required for preferred stock. If a company issues additional dividend-paying common stock, it must either cut the dividend per share or increase the draw from retained earnings.Companies generally canât cut preferred stock dividends, so issuing new preferred stock will cause retained earnings to fall.Even though retained earnings decrease because of additional dividends, stockholdersâ equity might increase because the company raises cash when it issues new shares.t includes accounts for equity -- common and preferred stock -- and retained earnings, the accumulated profits of the corporation. The accounting equation requires that stockholders' equity be equal to assets minus liabilities.
What is the biggest benefit in issuing bonus shares is that its adds to the total number of shares in the market. Say a company had 10 million shares. Now, with a bonus issue of 2:1, there will be 20 million shares issues. So now, there will be 30 million shares.This is referred to as a dilution in equity. Now the earnings of the company will have to be divided by that many more shares.) Bonus shares can be issued by a company only if the Articles of Association of the company authorizes a bonus issue. Where there is no provision in this regard in the articles, they must be amended by passing special resolution act at the general meeting of the company.