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.

In this article

Share this article

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 read more, please become an AAII Registered User or CLICK HERE.

First:   
Last:   
Email: