10 Things You Should Know About Stock Splits (2024)

10 Things You Should Know About Stock Splits (1)

What are stock splits? –Stock splits happen when a company increases its outstanding shares to make the stock more affordable to investors. For example, instead of a stock trading at $1,000 per share, a 10-for-1 stock split would allow it to trade for $100 per share (FIGURE 1) while the number of held shares would increase tenfold. This is also called a forward split.

10 Things You Should Know About Stock Splits (2)

Benefits of forward splits Companies tend to implement forward stock splits when the outlook for continued growth and profitability is strongest. Making it easier for investors to buy shares at a lower share price also helps companies broaden their base of ownership. From time to time, stock splits are followed by a bump in stock performance—but not always.

10 Things You Should Know About Stock Splits (3)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. Nor does a split change the total value of an investor’s portfolio holding per se. For companies, stock splits can be an expensive process requiring lots of legal oversight and adherence to regulatory rules.
10 Things You Should Know About Stock Splits (4)

No taxes owed! Stock splits aren’t a taxable event, but an investor’s cost basis in a stock should be adjusted to reflect a split. For example, after a 2-for-1 stock split, the cost basis of each share owned after the split will be half of what it was before the split.

10 Things You Should Know About Stock Splits (5)

Do mutual funds split like individual stocks? Yes. Mutual funds split the same way individual companies split, but it’s much less common. These splits help to bring in new money and make the fund more marketable. Mutual fund investors can benefit when individual companies do stock splits if the fund they own holds those companies.

10 Things You Should Know About Stock Splits (6)

Do stock splits benefit investors? It’s nice to own more shares after a split, since the reduced per-share price might mean there’s room for greater potential price growth. But investors shouldn’t buy a stock simply because they hope it’ll rise in price after a split. Over the long term, a company’s value is determined by its earnings, not its stock price.

10 Things You Should Know About Stock Splits (7)

A recent example In early 2024, the per-share price of Walmart, the retail giant, had risen close to $182.00—a high barrier for many ordinary investors in the view of the company’s management. In late January 2024, Walmart announced a 3-for-1 stock effective February 26. After the split, the shares traded at a more affordable $60.45.

10 Things You Should Know About Stock Splits (8)

What is the most common stock split ratio? A 2-for-1 stock split is the most common ratio. Three-for-two splits are also common, but fractional splits are not unheard of. In March 2024, Tootsie Roll Industries Inc., the confectionary manufacturer famous for the iconic Tootsie Roll candy, implemented a 1.03-for-1 split.

10 Things You Should Know About Stock Splits (9)

What's a reverse split? In a reverse stock split, a company decides to decrease the number of outstanding shares to make the stock more expensive to investors. For example, instead of a stock trading at $5 per share, a 10-for-1 reverse stock split would allow it to trade for $50 per share (FIGURE 2). Shareholders end up with 10 fewer shares for each share formerly held.

10 Things You Should Know About Stock Splits (10)

But isn't a cheaper share price better? Not always. A stock price might sink so low that a company’s reputation can be put at risk. Other times, a price that dips below a certain threshold can cause the stock to be delisted from an exchange or dropped from some mutual-fund holdings. Reverse splits are sometimes seen as a sign of company turmoil.

10 Things You Should Know About Stock Splits (2024)

FAQs

What is the most important thing to remember about a stock split? ›

Stock splits: What you need to know. 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.

What are 3 benefits to stock splits? ›

A stock split can make the shares seem more affordable, even though the underlying value of the company has not changed. It can also increase the stock's liquidity. When a stock splits, it can also result in a share price increase—even though there may be a decrease immediately after the stock split.

What happens in a 10 for 1 stock split? ›

For example, instead of a stock trading at $1,000 per share, a 10-for-1 stock split would allow it to trade for $100 per share (FIGURE 1) while the number of held shares would increase tenfold. This is also called a forward split.

Is there a downside to stock splits? ›

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.

Do stocks usually go up after a split? ›

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.

Which stock is splitting in 2024? ›

2024 Stock Splits
DateSymbolCompany Name
Apr 16, 2024LOARLoar Holdings Inc
Apr 15, 2024WISAWisa Technologies Inc
Apr 15, 2024MRINMarin Software Inc
Apr 15, 2024GRRRGorilla Technology Group Inc
87 more rows

Is it better to buy before or after a stock split? ›

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.

How do you profit from stock splits? ›

A stock split doesn't add any value to a stock. Instead, it takes one share of a stock and splits it into two shares, reducing its value by half. Current shareholders will hold twice the shares at half the value for each, but the total value doesn't change.

Are stock splits healthy? ›

It's basically a draw, and the value of your investment won't change. However, investors generally react positively to stock splits, partly because these announcements signal that a company's board wants to attract investors by making the price more affordable and increasing the number of shares available.

What is the biggest stock split in history? ›

Chipotle Mexican Grill Share Price: 50:1: Biggest Stock Splits in History! Mega Restaurant Company Fixes Record Date - Check Details | Markets News - Times Now.

Is a reverse split good? ›

Many times reverse splits are viewed negatively, as they signal that a company's share price has declined significantly, possibly putting it at risk of being delisted. The higher-priced shares following the split may also be less attractive to certain retail investors who prefer stocks with lower sticker prices.

Has a reverse split ever worked? ›

Reverse Splits Aren't All Bad

Sometimes companies decide to reverse split their shares just because they want to offer their shares at reasonable prices to attract new shareholders. There are examples of stocks that have prospered after doing so, including Citigroup (C).

What are the pros and cons of stock splits? ›

Pros and cons of stock splits
  • Pro: Makes shares more affordable. ...
  • Pro: May trigger renewed investor interest. ...
  • Con: Could trigger volatility. ...
  • Con: Does not add any new value: At least in the short term, the total value of your assets for the stock in question remains the same.
Dec 27, 2022

Why do companies avoid stock splits? ›

Some companies prefer to avoid splitting because they believe a high stock price gives the company a level of prestige. A company trading at $1,000 per share, for example, will be perceived as more valuable even though the firm's market capitalization may be the same as a company whose shares trade at $50.

What is 100 shares of stock called? ›

In stocks, a round lot is considered 100 shares or a larger number that can be evenly divided by 100. In bonds, a round lot is usually $100,000 worth. A round lot is often referred to as a normal trading unit and is contrasted with an odd lot.

What is a major objective of a stock split? ›

The major objective of a stock split is to reduce the market price per share of the stock.

What is the primary purpose of a stock split? ›

By splitting the stock, the company essentially lowers the price per share, making it more affordable and attractive to potential investors. The number of outstanding shares will rise due to a stock split, while the par value and market price will drop.

Is it better to buy before or after a reverse stock 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.

Top Articles
Latest Posts
Article information

Author: Saturnina Altenwerth DVM

Last Updated:

Views: 5393

Rating: 4.3 / 5 (44 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Saturnina Altenwerth DVM

Birthday: 1992-08-21

Address: Apt. 237 662 Haag Mills, East Verenaport, MO 57071-5493

Phone: +331850833384

Job: District Real-Estate Architect

Hobby: Skateboarding, Taxidermy, Air sports, Painting, Knife making, Letterboxing, Inline skating

Introduction: My name is Saturnina Altenwerth DVM, I am a witty, perfect, combative, beautiful, determined, fancy, determined person who loves writing and wants to share my knowledge and understanding with you.