Entering A Stock Split

stock splits

The first — forward stock splits — is the more popular choice for most successful publicly traded corporations, as it makes their stock more affordable. The second — reverse stock splits — although less common, achieve a reduction of outstanding shares and a higher stock price when an organization wants to take some shares off the market.

If companies that are doing well and have pricey shares pursue stock splits, then what do distressed companies do? If a company is worried that its stock seems too cheap, it might consider a “reverse split” — That is, combining shares to raise its stock price. You might think of it like rolling together two smaller pieces of playdough into one larger ball. The amount of clay you have is exactly the same, but it’s now one bigger blob. Likewise, a company that goes through a reverse split has a smaller number of more expensive shares . A stock split allows a company to increase the number of shares in circulation with no change to its market value, thereby making shares more affordable to individual investors. In a 2-for-1 split, for example, every share of a stock trading at $400 would be divided into two shares trading at $200.

How Many Times Has Amazon Stock Split?

Often, when a company splits its stock – or even announces its intention to do so – it causes volatility in the share price. Many investors see a stock split as a sign a company is performing well, so the stock value increases due to investor optimism. Traders, too, view positively, as they can create market volatility, which leads to more trading opportunities. The most common type of stock split is a forward split, which means a company increases its share count by issuing new shares to existing investors. For example, a 3-for-1 forward split means that if you owned 10 shares of company XYZ before it split, you’d own 30 shares after the split took effect.

A stock split is used primarily by companies that have seen their share prices increase substantially. Although the number of outstanding shares increases and the price per share decreases, the market capitalization does not change. As a result, stock splits help make shares more affordable to smaller investors and provides greater marketability and liquidity in the market.

In fact, since the company went public in December 1980, its stock has split four separate times. In July 2020, the company announced that a fifth split would happen in August 2020 . If you have investments in taxable accounts, many financial firms will track cost basis for you. However, financial firms were not required to track transactions made before January 1, 2011, which has left many investors with incomplete basis history. completed a 2-for-1 stock split in 2014, but the newly created shares were a nonvoting class, which is why there are now two publicly traded Alphabet ticker symbols. Keep in mind that a company with a $100 per share stock price is not neces­sarily more valuable than a company whose stock trades for $10 per share. There are many factors involved when deter­mining the value of a company and forecasting future growth.

Could Increase Volatility

This includes cookies used to enable you to log in and access our services, protect against fraudulent logins and help detect and prevent abuse or unauthorized use of your account. This free report aims to give you the confidence – and the right know-how – to dive right into the stock market. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone.

When a company declares a stock split, its share price will decrease, but a shareholder’s total market value will remain the same. If the company pays a dividend, your dividends paid per share will also fall proportionately. Companies like to do whatever they can to control the price of their stock. Most of the time, these reverse stock splits are not good for investors. A stock split ratio tells you the number of new shares that will be created after a forward stock split, or by how much the share count will be divided in a reverse stock split. For example, a 3-for-1 stock split means that two shares will be created for every one currently in existence, for a total of three after the split.

  • Instead of owning one share worth $100, two shares are owned worth $50 each.
  • If an investor has 100 shares at $20 for a total of $2,000, after the split, they will have 200 shares at $10 for a total of $2,000.
  • Since reverse stock splits often aim to raise a stock’s price , they often use larger numbers.
  • A reverse/forward stock split uses a reverse stock split followed by a forward stock split.

Liquidity provides a high degree of flexibility in which investors can buy and sell shares in the company without making too great an impact on the share price. Added liquidity can reduce trading slippage for companies that engage in share buyback programs. For some companies, this can mean significant savings in share prices. Companies often split shares of their stock to try to make them more affordable to individual investors. Unlike an issuance of new shares, a stock split does not dilute the ownership interests of existing shareholders.

In a typical, pure stock split, the total cost basis of the shares you own does not change. The cost basis per share will have changed according to the split ratio, but the total cost basis of your holding in that stock after the split will be the same as before the split.

Related Coverage In Investing:

Shares outstanding refer to a company’s stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s insiders. A 3-for-1 split means two additional shares are given for each share. Generally speaking, a traditional stock split is considered a good thing.

stock splits

Since stock splits don’t add economic value, much of it comes down to making the stock more attainable to everyday investors, and the behavioral benefits of that. Let’s use Apple’s most recent 4-for-1 stock split as an example.

Investing Quiz

Some stock exchanges will delist a stock if its price per share falls below a specified amount. A final reason is more psychological and that is that their stock is trading far below other companies in their sector. In this case, a reverse stock split may make investors perceive their stock as being on par with other similar companies.

NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, QuickBooks and past performance is not a guarantee of future performance. When you hold a short position on a stock that has a forward split, the shares will be debited from your account. Essentially, your short position is increased due to the split. A bonus issue is an offer of free additional shares to existing shareholders.

What happens if a stock is delisted?

Once a stock is delisted, the company’s shares can keep trading through a process known as “over-the-counter.” But that means the stock is outside the system — of major financial institutions, deep liquidity and the ability for sellers to find a buyer quickly without losing money.

Because the new price of the shares correlates to the new number of shares, the value of the shareholders’ stock doesn’t change and neither does the company’s market capitalization. Split announcements tend to push a company’s stock price higher. In penny stock land, a company doing a reverse split may issue a positive announcement to boost its stock price. Splits and reverse splits are different, but there are trading strategies for each. In a stock split, the company’s overall value stays the same — a split may reduce the price per share but it doesn’t affect the company’s market capitalization. A stock split is what happens when a listed company splits its shares outstanding into more shares.

The firms grow in value thanks to acquisitions, new product launches, or share repurchases. Companies carry out a stock split for the purpose of lowering the individual share price. A lower share price can make the stock more attractive to a broad range of investors, not all of whom could afford a stock priced at, say, $1,000. When a company splits its shares, the value of the shares also splits. For example, suppose the shares of XYZ Corp. were trading at $20 at the time of the 2-for-1 split; after the split, the number of shares doubles, and the shares trade at $10 instead of $20. If an investor has 100 shares at $20 for a total of $2,000, after the split, they will have 200 shares at $10 for a total of $2,000. Why do companies go through the hassle and expense of a stock split?

IG International Limited receives services from other members of the IG Group including IG Markets Limited. You then have a fractional number of shares in your portfolio. Apply the split to your current holdings in the Prices and Fundamentals views. The number of shares as well as the buy price will be updated.


While this effect can be temporary, the fact remains that by blue-chip companies are a great way for the average investor to accumulate an increasing number of shares in these companies. On the other hand, the price per share after the 3-for-1 stock split will be reduced by dividing the price by three. This way, the company’s overall value, measured by market capitalization, would remain the same. Investors should commonly avoid companies that have undergone a reverse stock split, unless the company provides solid plans to improve its performance. A stock split occurs when a company makes its shares more affordable by dividing its existing shares into additional, less expensive shares. A stock split is when a company decides to increase the number of shares by dividing its existing shares into additional shares. Amazon is more than just the e-commerce platform it was in 1998 when it launched its initial public offering , shortly thereafter issuing three stock splits within 15 months.

stock splits

Market capitalization is the total value derived from the number of outstanding shares and the price per share. For an invested shareholder, a stock split is like somebody taking $20 out of your pocket and putting four $5 bills back. You wind up with more bills in your wallet, but the intrinsic value of those bills is the same. In the same way, you may wake up one morning to find that the number of shares of a given company has doubled, but the value of those shares remains the same . A stock split is when a company lowers the price of its stock by splitting each existing share into more than one share.

Stock splits also tend not to drastically impact each shareholder of record. A traditional stock split is also known as a forward stock split. A reverse stock split is the opposite of a forward stock split. A company that issues a reverse stock split decreases the number of its outstanding shares and increases the share price. Like a forward stock split, the market value of the company after a reverse stock split would remain the same. A company might also reverse split its stock to make it more appealing to investors who may perceive it as more valuable if it had a higher stock price.

When a company completes a reverse stock split, each outstanding share of the company is converted into a fraction of a share. For example, if a company declares a one for ten reverse stock split, every ten shares that you own will be converted into a single share. If you owned 10,000 shares of the company before the reverse stock split, you will own a total of 1,000 shares after the reverse stock split. Blue Apron, the meal-kit pioneer, is a recent example of a company that went through a reverse stock split.

The split increases the number of shares outstanding, but its overall value does not change. Therefore the price of the shares will adjust online bookkeeping downward to reflect the company’s actual market capitalization. If a company pays dividends, new dividends will be adjusted in kind.