March 29, 2010
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. When a company declares a stock split, its share price will decrease, but a shareholder’s total market value will remain the same. For example, if you own 100 shares of a company that trades at $100 per share and the company declares a two for one stock split, you will own a total of 200 shares at $50 per share immediately after the split. If the company pays a dividend, your dividends paid per share will also fall proportionately.
A stock may split two for one, three for two, or any other combination. A reverse stock split occurs when a company reduces its number of outstanding shares, such as a one for two split. For a history of a company’s stock splits, check the company’s web site or contact its investor relations department.