Is it good for you when a stock splits?
The split may elicit additional interest in the company's stock, but fundamentally investors are no better or worse off than before, since the market value of their holdings stays the same.
Splitting the stock brings the share price down to a more attractive level. The actual value of the company doesn't change but the lower stock price may affect the way the stock is perceived and this can entice new investors.
The short answer is it doesn't matter, and here's why. As mentioned earlier, a stock split doesn't change the value of the company or the value of an investor's holding. If you buy one share today or 10 shares after the split, you'll be investing the same amount of cash.
Is the split worth it? – Stock splits have no tangible impact on a company's total value—they simply create more shares at more affordable prices.
Companies often choose to split their stock to lower its trading price to a more comfortable range for most investors and to increase the liquidity of trading in its shares. Most investors are more comfortable purchasing, say, 100 shares of a $10 stock as opposed to 1 share of a $1,000 stock.
A stock split doesn't change the value of your investment. If you own the stock of a company that executes a stock split, the details of your position change, but the total value of your position does not.
If a stock traded at $100 previously, it will trade at $50 after a 2-for-1 split. Yes, you own more shares, but they're each worth less. It's basically a draw, and the value of your investment won't change.
| Company (ticker) | Analysts' consensus recommendation score | Analysts' consensus recommendation |
|---|---|---|
| ServiceNow (NOW) | 1.49 | Strong Buy |
| Assurant (AIZ) | 1.50 | Strong Buy |
| Howmet Aerospace (HWM) | 1.50 | Strong Buy |
| Insulet (PODD) | 1.50 | Strong Buy |
Stock splits vs. stock spinoffs. One reason why there are fewer splits now than in 2000 has to do with the way retail investing has shifted. Back in 2000, broad-market index funds were relatively small factors and retail investors typically bought shares of individual companies.
There are various reasons why a company would seek a share split. The first is psychological. As the value of a stock rises, some investors may believe it is too expensive to acquire. Dividing the stock lowers the share price and makes it more reasonable and attractive.
What stocks are expected to split in 2024?
Public companies are always happy when their stock prices rise.
When a stock price gets high, sometimes a public company will want to lower that price and can do that with a stock split. A stock split is a decision by a company's board to increase the number of outstanding shares in the company by issuing new shares to existing shareholders in a set proportion.
Reverse stock splits do not impact a corporation's value, although they usually are a result of its stock having shed substantial value. The negative connotation associated with such an act is often self-defeating, as the stock is subject to renewed selling pressure.
Some analysts say stocks that split tend to outperform the broad market S&P 500 index in the 12 months following the split announcement. Others say a stock split isn't a reliable indicator of whether a stock's value will increase or decrease over time.
Let me say right off the bat that it's probably not a great idea to buy Walmart shares just because of the upcoming stock split. Nothing will change about the company's underlying prospects when it increases the number of outstanding shares. Yes, stock splits can sometimes cause a stock to jump.
It's important to note, especially for new investors, that stock splits don't make a company's shares any better of a buy than prior to the split. Of course, the stock is then cheaper, but after a split the share of company ownership is less than pre-split.
One way is to buy shares of the company before the reverse split occurs with the plan to sell them soon afterwards. This can be profitable if the company's stock price increases after the split. Another way to make money from a reverse stock split is to short sell the stock of the company.
Stock splits don't create a taxable event; you merely receive more stock evidencing the same ownership interest in the corporation that issued the stock. You don't report income until you sell the stock. Your overall basis doesn't change as a result of a stock split, but your per share basis changes.
Disadvantages of a Stock Split
A company cannot rely on a stock split to increase its value or market cap. A stock split divides the existing shares, thus keeping the market cap the same as before. Not to forget, a company must invest some amount to conduct a stock split.
Answer and Explanation: The correct answer is b. Lower the trading price of a stock into a more acceptable trading range.
What happens when you own 100 shares of a company?
A share denotes your ownership interest or how much of the corporation you own. For example, if you own 100 shares of a corporation that has issued 1,000 shares, your ownership in the corporation is 10 percent. Similarly, if you hold all the 1,000 shares, you own 100 percent of the corporation.
Stocks tend to significantly outperform the market in the 12 months after a split. A split improves the tradeability of a stock which reduces the company's cost of capital, positively affecting its fundamentals and pushing its valuation higher.
Although the number of shares outstanding increases during a stock split, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value.
You have two basic options. You can buy the shares beforehand while the price per share remains high. You will likely hope to profit from a rise in the share value with the excitement surrounding the stock. You can also elect to wait until after the split and then take advantage of the lower price per share.
| Stock | Implied Upside* |
|---|---|
| Meta Platforms Inc. (META) | 25.8% |
| Tesla Inc. (TSLA) | 4.5% |
| JPMorgan Chase & Co. (JPM) | 9.6% |
| Exxon Mobil Corp. (XOM) | 12.0% |
