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Splits and reverse splits
What is a Split?
A split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. For instance, in a 2-for-1 split, each shareholder receives an additional share for each share they hold, effectively doubling the number of shares while halving the price per share. The total value of the investment remains unchanged.
Example:
- Before Split: 1 share at $100
- After Split (2-for-1): 2 shares at $50 each
What is a Reverse Split?
A reverse split is the opposite of a stock split. In a reverse split, a company reduces the number of its outstanding shares and increases the share price proportionately. This is often done to meet stock exchange listing requirements or to improve the perception of the stock.
Example:
- Before Reverse Split: 10 shares at $1 each
- After Reverse Split (1-for-10): 1 share at $10
How Does it Affect the Products?
- Shares: The number of shares changes, but the total value of the shares remains the same.
- Share Price: The price per share adjusts according to the split ratio.
- Dividends: Dividend payments per share adjust proportionately to the split.
- Market Perception: Splits can affect investor perception, potentially making the stock more attractive or meeting exchange requirements.
Why is it Done?
- Increase Liquidity: More shares available at a lower price can make the stock more accessible to a broader range of investors.
- Meet Exchange Requirements: Reverse splits can help meet minimum share price requirements for stock exchanges.
- Perception Management: Companies may perform splits to improve marketability and investor perception.
Example of Recent Splits
- Amazon.com Inc. (AMZN): In June 2022, Amazon executed a 20-for-1 split.
- Alphabet Inc. (GOOGL): In July 2022, Alphabet performed a 20-for-1 split.
- Tesla Inc. (TSLA): In August 2022, Tesla executed a 3-for-1 split.
- NVIDIA Corporation (NVDA): In June 2024, NVIDIA executed a 10-for-1 split.
Upcoming Splits
| Stock | Company name | Split ratio |
| CTAS | Cintas Corporation | 4:1 |
| AVGQ | BroadCom Inc | 10:1 |
| WEB | W.R. Berkley Corporation | 2:1 |
