Series 66: Stock Splits

Stock Splits

If a company believes that the price of its stock has risen too high for the general public to purchase, it may carry out a stock split, meaning each outstanding share will split into two or more shares. The most common stock split is a 2-for-1 split. This means that every shareholder will receive twice the number of shares that he currently owns.

As with a stock dividend, when a stock split occurs, the total value of the stock does not change. Instead, the share price adjusts to reflect the split. In the case of a 2-for-1 split, the share price splits in half. In the case of a 3-for-2 split, the share price drops to two-thirds of what it was formerly.

Occasionally, a company will decide that its share price is too low. The company may worry that a low share price hurts their image or that their stock may not meet continued listing requirements on an exchange. Wh