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Articles From Lumsden McCormick

What Are Stock Splits?

Here’s what you need to know.

Provided by Jeffrey M. Budzinski, CFS®

Two high-profile companies—Apple and Tesla—have announced stock splits in the past few weeks, which makes it a great time to discuss what’s involved when a company announces a stock split.

Remember, any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, timeframe, and risk tolerance.

The Securities and Exchange Commission says, “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.”1

Apple Inc. announced that the 4-for-1 split of its common stock, and trading is expected to begin on a split-adjusted basis on August 31. Tesla Inc. plans a 5-for-1 split, which also is scheduled to begin trading on a split-adjusted basis on August 31.2,3

When a company declares a stock split, a shareholder’s total market value will remain the same. For example, say you own 100 shares of a company that trades at $200 per share. If the company declares a 2 for 1 stock split, you will own a total of 200 shares at $100 per share immediately after the split. If the company pays a dividend, your dividends paid per share will also fall proportionately.4

There is also a “reverse stock split.” If a company declares a reverse split, it plans to reduce the number of outstanding shares, such as a 1 for 2 split. A reverse stock split tends to occur with companies that believe their stock price is too low to attract investors.5

Will more companies consider a stock split? That’s hard to say. Some companies prefer a higher stock price. Perhaps the best-known high-priced stock is Warren Buffett’s Berkshire Hathaway Inc. It’s Class A shares trade for more than $300,000 a share.6

In the days leading up to a stock split, you’re likely to hear a lot of opinions about the companies. Over the years, we have found that it’s best to ignore that chatter and stick with an investment approach that’s in line with your personal situation.

Jeffrey M. Budzinski, CFS®, Director of Wealth Management, may be reached at 716-856-3300 ext. 112 or jbudzinski@lumsdencpa.com  

www.fslumsden.com


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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities offered through Avanatax Investment ServicesSM, Member FINRA, SIPC.  Investment Advisory services offered through Avantax Advisory ServicesSM. 

Citations

1. SEC.gov, 2020

2. Investor.Apple.com, July 30, 2020

3. ir.Tesla.com, August 11, 2020

4. Dividends can be stopped, increased, or decreased at any time by a company’s board of directors.

5. FINRA.org, 2020

6. Investopedia.com, February 19, 2019

Investing involves risk, and the return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Past performance does not guarantee future results.

 

What Are Stock Splits?

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Jeff has been in the financial services industry for over 20 years. He is a Certified Fund Specialist® from the Institute of Business and Finance and has passed his SIE, Series 6, 7, and 63 exams as well as holding Life, Accident, and Health insurance licenses. He is experienced in qualified plan design as well as custom income strategies and cash flow. Jeff also has significant experience with insurance planning as a strategy to protect wealth and future generations. Jeff has studied modern portfolio theory, which is vital to efficient portfolio modeling, allowing for mean-variable analysis with a mathematical framework that is consistent with individual risk factors. 

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