Investors: Everything you need to know about a corporate action - Women's Agenda

Investors: Everything you need to know about a corporate action

If you have researched the share market then you will know that running your own share portfolio is not just about buying and selling a few shares. It’s also about money and risk management, knowing how to select the right stocks for your portfolio and understanding all the terminology that goes with share market investing.

(Our website is full of helpful tips and user friendly information if you are wanting to get up to speed and you can also find documentation on the ASX website). But today, I want to discuss one area of investing that is often overlooked by investors. At least it’s overlooked until they receive a notice in the mail about a corporate action and don’t know what it means.

Knowing about corporate actions is important because they will generally have an impact on the price of your shares.

So, what is a corporate action?

A corporate action follows a decision by a company’s board of directors, and at times following a vote by shareholders, with the intent being to provide a financial benefit to the company and/or its shareholders. However, the impact on the share price will not always be positive, which is why you need to read up about each corporate action.

There are lots of different classifications of corporate actions so I have narrowed the list below down to those most commonly seen:

  • Rights issues – you may be offered additional shares in the company you own at a price determined by the company and you will be given a set time to respond to the offer.
  • Off market share buy-backs – this is where the company will offer to buy some/all of your shares at a set price without charging brokerage.
  • Dividends – the most common type of corporate action is the distribution of dividends paid from company profits. You may be given a choice of receiving cash into a nominated bank account or additional shares through what is called a Dividend Reinvestment Plan (DRP).
  • Mergers and takeovers – in the case of a merger, the company you own shares in may join forces with another company and you may be issued new shares in the merged entity. Whereas, with a takeover, if the company you own is taken over it will disappear from the ASX registry and you may either be offered cash for your shares and/or shares in the other company.
  • A change to the company structure or name – there are many reasons why a company might do this. A previous example is Westfield Holdings who dramatically changed the structure by separately listing the retail property investments division from the property development side of the business.
  • Share split – a share split can bring the share price back to a level that is perceived by the market as more attractive. Many years back a company called CSL Ltd did this when the shares were trading close to $100. The value of the company didn’t change, but the share price was split by a factor of approximately three while the number of shares on issue increased by this factor.

As a shareholder you can find out about corporate actions you receive as follows:

  1. Read any correspondence the company sends you – listed companies are required by law to send all shareholders information about corporate actions.
  2. Look up the latest announcements on the website of your online broker.
  3. Visit the ASX website, select “Announcements” from the left hand navigation and enter the company/stock code in the box provided.
  4. If you are unsure about the details of a corporate action you can contact the share registry that represents the company you invest in. You will find contact details for the share registrar at the top of your share holder statements.

To find out more on how to be successful in the share market you are welcome to listen to our free podcasts.

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