Having a share in your portfolio means that all possible changes on the share or stock exchange will also affect your positions. Corporate actions are events that materially impact its stakeholder. Common corporate actions include the payment of dividends, stock splits, tender offers, mergers, and acquisitions. We will not touch on all these items here, but we will explain to you the most common corporate actions.
Most corporate actions will affect the value of your position, without proper knowledge of what is really happening it is difficult to evaluate the impact on your position.
List of common corporate actions:
The most important corporate action is the Dividend. We will explain dividends later on in this course.
Dividend can be received in two ways: In cash or in shares
All of the above corporate actions are major decisions that typically need to be approved by the company’s board of directors and authorized by its shareholders.
There are three types of corporate actions: Voluntary, Mandatory, and Mandatory with choice
3. Mandatory with choice corporate action: This corporate action is a mandatory corporate action where shareholders are given a chance to choose among several options. An example is a cash or stock dividend option with one of the options as default. Shareholders may or may not submit their elections, the default option will be applied.
Some market participants use a different method to distinguish the corporate action types. For example, ”mandatory corporate action” and ”mandatory with choice corporate action” may be used together. DTC uses the terms distributions, redemptions, and reorganizations.