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What Are Stock Splits?

What Are Stock Splits?

| August 26, 2020
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Two high-profile companies—Apple and Tesla—have announced stock splits in the past few weeks, which makes it a great time to discuss what’s involved when a company announces a stock split.

Remember, any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, timeframe, and risk tolerance.

The Securities and Exchange Commission says, “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.”1

Apple Inc. announced that the 4-for-1 split of its common stock, and trading is expected to begin on a split-adjusted basis on August 31. Tesla Inc. plans a 5-for-1 split, which also is scheduled to begin trading on a split-adjusted basis on August 31.2,3

When a company declares a stock split, a shareholder’s total market value will remain the same. For example, say you own 100 shares of a company that trades at $200 per share. If the company declares a 2 for 1 stock split, you will own a total of 200 shares at $100 per share immediately after the split. If the company pays a dividend, your dividends paid per share will also fall proportionately.4

There is also a “reverse stock split.” If a company declares a reverse split, it plans to reduce the number of outstanding shares, such as a 1 for 2 split. A reverse stock split tends to occur with companies that believe their stock price is too low to attract investors.5

Will more companies consider a stock split? That’s hard to say. Some companies prefer a higher stock price. Perhaps the best-known high-priced stock is Warren Buffett’s Berkshire Hathaway Inc. It’s Class A shares trade for more than $300,000 a share.6

In the days leading up to a stock split, you’re likely to hear a lot of opinions about the companies. Over the years, we have found that it’s best to ignore that chatter and stick with an investment approach that’s in line with your personal situation.

Contact us with questions or comments today. 

Matthew J. Condon, CFP®

Founding Partner

Condon Sullivan Wealth Management & Planning

Office: 781-552-4900 

Email: mcondon@condonsullivan.com

Citations:

  1. SEC.gov, 2020
  2. Investor.Apple.com, July 30, 2020
  3. ir.Tesla.com, August 11, 2020
  4. Dividends can be stopped, increased, or decreased at any time by a company’s board of directors.
  5. FINRA.org, 2020
  6. Investopedia.com, February 19, 2019

Compliance Note: A0RB-0824-Aug21

Disclosure: This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Investing involves risk, and the return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Past performance does not guarantee future results.

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Thomas Sullivan & Matthew Condon are Registered Representatives of and Securities and Investment Advisory services offered through Hornor, Townsend & Kent, Inc., (HTK), Registered Investment Advisor, Member FINRA/SIPC, 600 Dresher Road, Horsham, PA 19044, 800-873-7637.  Condon Sullivan Wealth Management and Planning and all listed entities are independent of HTK. HTK does not offer tax or legal advice. Always consult a qualified tax advisor regarding your personal tax situation and a qualified legal professional for your personal estate planning situation.

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