According to FINRA, a stock split is when a company divides its existing shares into multiple new shares. This is usually done to make the stock more affordable for investors. For example, if a company has 100 shares worth $100 each, and it splits them into 10 shares worth $10 each, then the total value of the company’s stock remains the same.
Stock splits can be either a stock dividend or a stock split. A stock dividend is when a company pays out shares to its shareholders as a way of distributing profits. A stock split is when a company divides its existing shares into multiple new shares. This is usually done to make the stock more affordable for investors.
There are two types of stock splits: a stock dividend and a stock split.
A stock dividend is when a company pays out shares to its shareholders as a way of distributing profits.
A stock split is when a company divides its existing shares into multiple new shares. This is usually done to make the stock more affordable for investors.
Both stock dividends and stock splits can be either pro rata or non-pro rata.
Pro rata means that the shareholders will receive the same proportion of shares as they currently own. So, if a shareholder owns 10% of the company’s stock, they will receive 10% of the new shares.
Non-pro rata means that the shareholders will not receive the same proportion of shares as they currently own. So, if a shareholder owns 10% of the company’s stock, they might receive 20% of the new shares.
Stock splits are usually done on a 2-for-1 or 3-for-2 basis, meaning that each shareholder will receive two or three new shares for every share they own.
Stock splits can be beneficial for investors because they can make the stock more affordable, and they can also signal that the company’s stock is undervalued.Splits are typically executed when a stock is trading at a high price per share. By splitting the stock, the company makes it more affordable and attractive to a wider range of investors.
Stock splits can also signal that the company’s stock is undervalued. If a company’s stock is trading at $100 per share, and it announces a 2-for-1 stock split, that means each shareholder will receive two new shares for each share they own. After the stock split, the stock price will likely fall to around $50 per share. This can signal to investors that the stock is undervalued and may be a good time to buy.
The Stock split may be a good time to buy stock in the company.
It’s important to remember that stock splits don’t necessarily mean that the stock is a good investment. They can just as easily signal that the stock is overvalued and about to fall. So, it’s always important to do your own research before investing.
If you’re thinking about investing in a stock that has recently announced a stock split, FINRA’s SIE program can help you learn more about the company and its stock. The SIE is a computer-based exam that tests your knowledge of the securities industry. It’s offered by FINRA and available to anyone who wants to take it. You will need to get an SIE prep course to prepare for the exam.
