The First Cut: Recent Stock Splits

    The First Cut: Recent Stock Splits Splash image

    Stock splits are often announced with great fanfare and strong press coverage. A positive stock split partitions the outstanding shares of a corporation into a larger number of shares accompanied with a proportionate decrease in share price, without affecting the overall shareholders’ equity or the total market value. For example, if you own 100 shares of a company that trades at $90 a share and it declares a three-for-two stock split (a split ratio of 1.5), you will own a total of 150 shares at $60 a share after the split. If the company pays a dividend, the dividends paid per share will also fall proportionately.

    Why do companies split their shares—and why should you care? While stocks normally get a small boost from announcing a split, more importantly splits follow a period of strong price performance. Companies generally try to keep their stock price within a certain range. A stock split announcement represents a vote of confidence from the board of directors that acknowledges a company’s stock performance and signals the board feels that performance is going to continue.

    ...To continue reading this article you must be registered with AAII.

    Gain exclusive access to this article and all of the member benefits and investment education AAII offers.
    JOIN TODAY for just $29.
    Register for FREE
    to read this article and receive access to future articles.

    Log in
    Already registered with AAII? Login to read the rest of this article.