Smaller companies listed on BVB lure investors with stock dividends

Romanian DIY chain MAM Bricolaj (MAM) and local affiliate marketing firm 2Performant (2P) recorded significant share price increases on the Bucharest Stock Exchange's AeRO market on Friday after announcing plans to compensate their shareholders with stock dividends.

Both companies plan to distribute four new shares for each outstanding share and invited their shareholders to approve the move.

2performant will capitalize nearly EUR 4,000 of its EUR 170,000 net profit generated in 2020 and increase five-fold its number of shares. After the 6.4% increase in the March 19 session, the company's capitalization reached RON 40 million (EUR 8.2 mln). Its revenues from operations rose by 47% year-on-year to RON 5.4 mln (EUR 1.1 mln) in 2020.

MAM Bricolaj, a company with a market capitalization of RON 84 mln (EUR 17.4 mln), will capitalize EUR 140,000 of its EUR 170,000 net profit obtained last year. It will also increase its number of shares five-fold.

Stock dividends are a way of distributing profits to shareholders without reducing the company's cash reserves. In theory, the stock dividends don't have an impact on the company's value (no cash enters or leaves the company), but they result in cheaper shares (the same capitalization is divided by a higher number of shares). This makes the shares available to more investors. Depending on the fiscal regime, it may also provide a way of fiscal optimization to investors.

Two other companies listed on AeRO, smartphone producer iHunt (HUNT) and cybersecurity company Safetech Innovations (SAFE), also announced they would distribute stock dividends from last year's profits. Both recorded further share price increases after the announcements.

(Photo: Diana Oros/ Inquam Photos)