(8) Possibility Of Higher Dividends
It is one of the most popular reasons why company promoters increasing stake in a given equity. Dividend is the distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders.
Dividends are usually issued to shareholders in form of cash payments, or shares of the company, or other property.
Generally, higher the shareholding pattern of an investor, higher will be his/her dividend.
Promoters are usually the most clued investors about a company. If they are expecting a large dividend from the company, they are likely to increase their stake to maximize their dividend income.
This is clearly reflected from increasing shareholding pattern of promoters prior to dividend announcements. Thus, investors take clues from such stake increase before result announcements.
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(9) Buying An Unsubscribed Right Issue
It is one of the most authentic reasons why company promoters accumulating shares in a given stock. A right issue (or offering) is an issue of rights to existing shareholders to purchase additional shares directly from company.
Shareholders can buy additional shares in proportion to their existing holdings, within a fixed or predetermined time period.
However, if the right issue is not fully subscribed by its investors then promoters may step in to buy remaining shares. This timely step is necessary for the success of a right issue. However, this will in turn result in increasing the stake of promoters.
This increase would mean nothing for the investors. It is a normal process to save the right issue as well as reputation of company in stock markets.
Thus, investors should not consider this stake increase as a green signal for buying.
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