Stock Splits – What Are They?

Two nickels for one dimeExample:

Stock price is $100 per share Investors aren’t buying because the price is high Split the stock 2 for 1 Investors who owned one share @$100 now have 2 at $50 Benefit: You receive twice the dividend As new investors buy in because the price is lower, your

shares rise in value (supply has been created to meet future demand)

Now I have double the dividend income, and my stock may increase in price

Reverse Splits – What Are They?

One dime for two nickelsExample:

Stock price is $10 per share Investors aren’t buying because the price is too low Reverse-split the stock 1 for 2 Investors who owned two shares @$10 now have one

at $20 Detriment: You lose half the dividend Benefit: The price can continue to rise because

there are less shares available (lack of supply) My stock increased in price, but I have fewer shares

Reverse Splits - You Try!

You own 200 shares of Company AThe stock price is $10 per shareHow much are your shares worth now?They pay $2.00 per share dividend annuallyWhat’s your annual dividend payoutCompany A announces a 1 for 4 reverse splitHow many shares will you end up with? How much is each share now worth? $What will your dividend be for the year? How much are your shares worth?

Solution

You own 200 shares of Company AThe stock price is $10 per shareHow much are your shares worth now?They pay $2.00 per share dividend annuallyWhat’s your annual dividend payout $400Company A announces a 1 for 4 reverse splitHow many shares will you end up with? 50 sharesHow much is each share now worth? $40What will your dividend be for the year? $100How much are your shares worth? $2,000