The Bonus Debate: Does It Create Value? United Plantations vs. Berkshire Hathaway
The Core Question
If a bonus issue (stock split) doesn't change market capitalization, does it benefit shareholders at all?
Let's answer this using United Plantations as our case study, with Berkshire Hathaway as the philosophical counterpoint.
Part 1: The Mathematics of Bonus Issues
What Actually Happens in a Bonus Issue
| Metric | Before Bonus | After 1-for-1 Bonus | Change |
|---|---|---|---|
| Shares held | 1,000 | 2,000 | +100% |
| Share price | RM 60.00 | RM 30.00 | -50% |
| Portfolio value | RM 60,000 | RM 60,000 | 0% |
| Market cap | RM 10 billion | RM 10 billion | 0% |
Immediate impact: Zero. You have the same pizza, just cut into more slices.
Part 2: The United Plantations Experience
Let's isolate the effect of UP's two bonus issues (2020 and 2025) on your 1969 IPO investment.
Scenario A: With Bonuses (What Actually Happened)
| Year | Shares | Share Price | Portfolio Value | Dividends Received |
|---|---|---|---|---|
| 2019 | 1,000 | RM 8.76 | RM 8,760 | ~RM 1,200 |
| 2020 | 2,000 | RM 9.65 | RM 19,300 | RM 2,500 |
| 2024 | 2,000 | RM 20.72 | RM 41,440 | RM 3,400 |
| 2025 | 3,000 | RM 30.50 | RM 91,500 | RM 3,540 |
| 2026 | 3,000 | RM 34.82 | RM 104,460 | RM 2,430 |
Total dividends (2020–2026): ~RM 16,770
Scenario B: Without Bonuses (Hypothetical)
If UP had never issued bonuses, your 1,000 shares would still be 1,000 shares. But the share price would be 3× higher to reflect the same market cap.
| Year | Shares | Share Price | Portfolio Value | Dividends Received |
|---|---|---|---|---|
| 2019 | 1,000 | RM 26.28 | RM 26,280 | ~RM 1,200 |
| 2020 | 1,000 | RM 28.95 | RM 28,950 | RM 1,250* |
| 2024 | 1,000 | RM 62.16 | RM 62,160 | RM 1,700* |
| 2025 | 1,000 | RM 91.50 | RM 91,500 | RM 1,180* |
| 2026 | 1,000 | RM 104.46 | RM 104,460 | RM 810* |
*Dividends halved because DPS is per share, and you have fewer shares.
Total dividends (2020–2026): ~RM 8,385
Part 3: The Comparison
| Metric | With Bonuses | Without Bonuses | Difference |
|---|---|---|---|
| Final shares (2026) | 3,000 | 1,000 | +2,000 shares |
| Share price (2026) | RM 34.82 | RM 104.46 | -RM 69.64 |
| Portfolio value | RM 104,460 | RM 104,460 | Identical |
| Dividends (2020–2026) | RM 16,770 | RM 8,385 | +RM 8,385 |
| Total wealth | RM 121,230 | RM 112,845 | +RM 8,385 |
The key insight: The bonuses didn't change your share value, but they increased your dividends because you had more shares when UP was paying high DPS.
Part 4: The Berkshire Hathaway Philosophy
Warren Buffett has never split Berkshire's shares. The Class A shares trade at over $600,000 each.
Why Buffett Avoids Splits
| Reason | Explanation |
|---|---|
| Attract long-term investors | High price filters out short-term speculators |
| Signal confidence | No need to make shares "affordable" |
| Reduce administrative costs | Fewer shareholders to manage |
| Focus on business value | Avoids "share price games" |
Buffett's famous quote:
"We get asked all the time, 'Why don't you split the stock?' And our answer is, we want shareholders who think of themselves as business owners, not traders."
Berkshire's Alternative: No Dividends, No Splits
| Metric | Berkshire Hathaway |
|---|---|
| Share price (2026) | ~$700,000 |
| Dividends | None since 1967 |
| Return to shareholders | 100% through capital appreciation |
| CAGR (1965–2025) | ~19–20% |
Berkshire proves that you can build massive wealth without ever splitting shares or paying dividends — if you can reinvest capital at high returns.
Part 5: So Which Is Better — Bonus or No Bonus?
The Case for Bonuses (UP's Experience)
| Advantage | Explanation |
|---|---|
| Higher dividend income | More shares → more dividends if DPS is maintained |
| Improved liquidity | Lower price attracts retail investors |
| Psychological boost | Investors "feel" richer with more shares |
| Broader shareholder base | More affordable for small investors |
In UP's case: Bonuses added ~RM 8,385 in extra dividends over 7 years — a real, tangible benefit.
The Case Against Bonuses (Berkshire's Philosophy)
| Advantage | Explanation |
|---|---|
| Signals quality | High price attracts serious, long-term holders |
| No dilution of focus | Management focuses on business, not stock price |
| Tax efficiency | No taxable event for shareholders |
| Lower costs | Fewer administrative headaches |
In Berkshire's case: No bonuses + no dividends created higher CAGR (19–20% vs. UP's 9%) because retained earnings were reinvested brilliantly.
Part 6: The Hybrid Truth
What Actually Matters
| Factor | Impact on Wealth |
|---|---|
| Business quality | The ONLY thing that matters long-term |
| Dividend policy | Affects how you receive returns |
| Bonus issues | Affect dividend income, not company value |
| Share price | Just a number — market cap is what counts |
The Mathematical Reality
If a company maintains its dividend per share after a bonus, you win.
If it cuts DPS proportionally, you break even.
If it cuts DPS more than proportionally, you lose.
UP maintained DPS after bonuses → you won.
Part 7: Comparison Table — UP vs. Berkshire
| Metric | United Plantations | Berkshire Hathaway |
|---|---|---|
| Bonuses/Splits | Yes (2020, 2025) | Never |
| Dividends | Yes (since forever) | None since 1967 |
| Share price (2026) | RM 34.82 | ~$700,000 |
| CAGR (long-term) | ~9% | ~19–20% |
| How you get paid | Cash dividends + appreciation | 100% appreciation |
| Ideal investor | Income seeker | Long-term compounder |
| Tax efficiency | Less (dividends taxed) | More (no taxable events) |
| Liquidity | High (affordable price) | Low (very high price) |
Part 8: The Final Verdict
Is It Good to Have Bonuses?
It depends on what you value:
| If you want... | Then bonuses are... |
|---|---|
| More dividend income | ✅ Good (if DPS maintained) |
| Maximum long-term CAGR | ⚠️ Neutral (business quality matters more) |
| Tax efficiency | ❌ Bad (more taxable events) |
| Liquidity | ✅ Good (easier to sell small lots) |
| Serious long-term holders | ❌ Bad (attracts more traders) |
For United Plantations Specifically
The bonuses were clearly beneficial for you because:
UP maintained high DPS after each bonus
You received double/triple the dividends in high-payout years
Your total wealth increased by ~RM 8,385 purely from the dividend effect
Buffett's Wisdom Applied
"The difference between a good business and a great business is that a great business can keep earning high returns on capital for decades."
Both UP and Berkshire are great businesses.
Berkshire chose to reinvest all capital for you.
UP chose to pay you cash and split shares.
Neither is "right" or "wrong" — they just serve different investors differently.
Summary Table: The Bonus Effect on Your UP Investment
| Scenario | Shares | Price | Portfolio | Dividends (2020–2026) | Total Wealth |
|---|---|---|---|---|---|
| With bonuses | 3,000 | RM 34.82 | RM 104,460 | RM 16,770 | RM 121,230 |
| Without bonuses | 1,000 | RM 104.46 | RM 104,460 | RM 8,385 | RM 112,845 |
| Difference | +2,000 | -RM 69.64 | RM 0 | +RM 8,385 | +RM 8,385 |
The bonus issues added RM 8,385 to your wealth — not through share price, but through higher dividends.
Disclaimer: This report is AI generated and based on publicly available information and analytical estimates. It does not constitute financial advice. Investors should conduct their own due diligence and consult with financial advisors before making investment decisions.
Comments
Post a Comment