Stock Splits – What Are They? Two nickels for one dime Example:  Stock price is $100 per share  Investors aren’t buying because the price is high  Split.

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Stock Splits – What Are They? Two nickels for one dime Example:  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 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 nickels Example:  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 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 A The stock price is $10 per share How much are your shares worth now? They pay $2.00 per share dividend annually What’s your annual dividend payout Company A announces a 1 for 4 reverse split How 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 A The stock price is $10 per share How much are your shares worth now? They pay $2.00 per share dividend annually What’s your annual dividend payout $400 Company A announces a 1 for 4 reverse split How many shares will you end up with? 50 shares How much is each share now worth? $40 What will your dividend be for the year? $100 How much are your shares worth? $2,000