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Capital Measures and Your Portfolio
What capital measures exist and what should you pay attention to?
As an investor, it is helpful to be aware of the main capital measures, as they can have implications for your portfolio or voting rights. Occasionally, you may also need to take action. Capital measures are typically proposed by the management board, but the final decision is made by the shareholders (i.e., the owners) at the annual general meeting (AGM).
Dividend:
The payment of dividends is based on the company’s profits. To be entitled to the dividend, it is necessary for you to hold the respective security in your own portfolio on the day of the AGM. Typically, dividends are paid to shareholders the day after the AGM, which results in a so-called dividend deduction. The stock price is reduced by the amount of the dividend and marked as “ex-Div”. Therefore, it ultimately does not matter whether you buy or sell the stock before or after the dividend payment. Dividends are often paid either once a year or quarterly.
Capital Increase:
A capital increase involves raising the equity by issuing new shares. You receive subscription rights to purchase these new shares for a specific period, usually 14 days. The capital increase always occurs at a specific subscription ratio, such as 3:1. As an existing shareholder, if you have three shares, you have the opportunity to acquire a new share. By exercising the subscription rights, you can prevent dilution of your share in the company. However, there is no obligation to exercise the rights. You can also sell the subscription rights on the stock exchange, or consult your broker or bank if in doubt. If you are fundamentally convinced of the company’s prospects and the reason for the capital increase, exercising the subscription rights is advisable.
Stock Split:
A stock split involves dividing a company’s shares to make the previously high price appear lower and thus more attractive to new investors. With a ratio of 1:5, for example, you receive five new shares for each old share, while the stock price is reduced to one-fifth of the original value. The total market value of the company remains unchanged. As an investor, you will usually be informed of a planned stock split at the AGM. However, there is no need for action, as the new shares will automatically be credited to your portfolio by your bank. Therefore, if you observe an unjustified, significant drop in a stock’s price, a stock split may have been carried out.
Other Measures:
Special Dividend: This is a one-time distribution of profits due to excess liquid funds, such as from a stake sale. Unlike regular dividends, special dividends are generally tax-exempt, as the distribution comes from already taxed capital.
Takeover: In an acquisition, i.e., the complete acquisition of a company by another, a cash acquisition offer is usually presented. However, the offer may also involve a stock swap, where you are offered shares of the acquiring company at a specific ratio.
Spin-off: Sometimes an existing company separates a part as an independent entity. As compensation for surrendering this part of the company, existing shareholders have the right to acquire these new shares, often even free of charge. If you do not exercise this right, you can also sell the purchase right on the stock exchange.
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