Stock Split

Stock split

Occurs when a firm issues new shares of stock and in turn lowers the current market price of its stock to a level that is proportionate to pre-split prices. For example, if IBM trades at $100 before a two-for-one split, after the split it will trade at $50, and holders of the stock will have twice as many shares as they had before the split. See: Split.

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stock split

See split.

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Stock split. When a company wants to make its shares more attractive and affordable to a greater number of investors, it may authorize a stock split to create more shares selling at a lower price.

A 2-for-1 stock split, for example, doubles the number of outstanding shares and halves the price. If you own 100 shares of a stock selling at $50 a share, for a total value of $5,000, and the company's directors authorize a 2-for-1 split, you would own 200 shares priced at $25, with the same total value of $5,000.

Announcements of stock splits, or anticipated stock splits, often generate a great deal of interest. Buyers may simply want to take advantage of the lower share price, or they may believe that the split stock will increase in value, moving back toward its presplit price.

While 2-for-1 splits are the most common, stocks can be also be split 3-for-1, 10-for-1, or any other combination. In addition, a company can reverse the process and consolidate shares to reduce their number by authorizing a reverse stock split.

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Stock Split

Additional shares of stock distributed to shareholders at no cost. The number of shares received are a ratio of the shares owned. The basis of the original shares is generally apportioned equally to the total shares owned after the split.