The Benefits Of Stock Splits
Why are stock splits good news for investors? Stock splits lower the price of a company’s stock making the stock more affordable for small investors. This often attracts new investors with this new lower price per-share. Stock splits provide an important motivation to purchase stock at the new lower price. When the stock is cheaper to purchase the demand and the price of the stock can go up. All of this is good news for investors! Moreover, a company that splits its stock is usually a healthy one. This could signal a worthwhile investment.
Stock splits increase the number of shares in a company. After a stock split an investor’s stock would be worth the same and the investor would have more shares of stock immediately! Let us take a 2-for-1 stock split. After this split, each investor would own double the number of shares, and each of their shares would be worth half as much. However, a stock split does not increase the market capitalization of a company.
In 2022 there are many technology companies splitting their stocks. Many of these companies have high market prices. This makes it harder for the small investor to purchase their stocks. It may prevent them from buying shares in the company.
One example of a company with an upcoming stock split is Amazon. Amazon will have a 20-1 stock split on June 6th. The current price for a share of Amazon stock is: $2,429.35 as of this writing! However, once the stock split takes effect in June, the price per share will only be: $121.46. As you can see above, a stock split significantly reduces the price of a company’s stock! This price reduction will allow the small investor to be able to afford shares in the company.
In addition to Amazon, other technology companies have also announced plans to split their stocks this year. They are Alphabet (Google):(GOOG) at: $2287.11 per share. Google will have a 20 for 1 stock split on July 15 significantly lowering the price of its stock to $114.35 per share. Another company is Shopify (SHOP) currently at: $360.82 per share. Shopify will have a 10 for 1 stock split on June 29th lowering the price of its stock to 36.08 per share. Tesla (TSLA) at: $711.29 per share has requested a a 3 way stock split and will bring this up at its meeting on August 4th. This would lower its price per share to $237.09 per share. These are current prices per share. As you can see, all three of these companies currently have expensive per-share prices. These reduction in prices will definitely be good news for the small retail investor!
In conclusion, stock splits make a company’s stock more affordable! This makes it easier for the small investor to purchase the company’s shares. What was once unaffordable is now more affordable! In addition, companies that split their shares are usually healthy ones and the price of their stock can go up.
