The act of splitting itself is neutral for shareholder value. If you start off with 10 shares worth $100 each and the stock splits two-for-one, you’ll end up with 20 shares worth $50 each. It’s usually done to lower the price of a company’s shares, making them accessible to more investors.
What it means:
A stock split is what happens when a company issues new shares to their stockholders in proportion to their investors’ existing holdings. For example, when Amazon first listed on the NASDAQ exchange in 1997, investors could buy in for a paltry $1.73 per share. Today, one share would set you back more than $3,000. While Amazon is one of the pricier stocks to buy from a dollar value perspective, many other companies would also have astronomical prices if they didn’t split their stock. Because this strategy tends to draw attention to a company’s growth story, and with more investors now able to afford its stock, share prices tends to climb higher soon after the split. Stock splits allow companies to increase the number of shares in circulation, which then lowers their stock’s price in proportion to the split. It doesn’t impact the value of the investors’ holdings, as the firm issues a certain number of new shares to existing shareholders based on what they already own. For instance, in a two-for-one split, investors get another share for every one they own. In a three-for-two split, they’ll get another share for every two they own. Companies whose shares have appreciated significantly do this to make their shares more affordable and accessible to a greater number of investors. (Some companies eschew stock splits and let their shares grow to $1,000 or more, but this makes them less accessible for small investors to own.) If the stock pays a dividend, the payout per share will be cut to reflect the new value, but the dividend yield does not change.