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The Old Thrift Plan
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<blockquote data-quote="JonFrum" data-source="post: 353597"><p>JustTired,</p><p></p><p>I agree.</p><p></p><p>But when a stock splits, there are now twice as many units of stock in the market. So any increase in the value of the Company must now be distributed over twice as many shares. In other words, to use your example, it's unlikely that the share price would increase $10 for the original (pre-split) shares, <strong>and</strong> the same $10 for the post-split shares. Since the same overall increase in corporate value is being distributed over twice as many shares in the post-split senario, each share would only increase by $5, not $10!</p><p></p><p>Likewise with dividends. The same overall dividend distribution must now be spread over twice as many shares. So the dividend per share would be (all other things being equal) only half as much in the post-split senario.</p><p></p><p>After a split, you have twice as many shares of stock, they are each worth only half as much, and any future increases in stock price and dividend declaration will be only half as great, on a per share basis. </p><p></p><p>TANSTAAFL [There ain't no such thing as a free lunch.]</p><p></p><p>Since stocks are often bought in hundred lot units, reducing the stock price by splitting the stock makes it more affordable to future small investors. But stock splitting does not make the current investor any richer.</p></blockquote><p></p>
[QUOTE="JonFrum, post: 353597"] JustTired, I agree. But when a stock splits, there are now twice as many units of stock in the market. So any increase in the value of the Company must now be distributed over twice as many shares. In other words, to use your example, it's unlikely that the share price would increase $10 for the original (pre-split) shares, [b]and[/b] the same $10 for the post-split shares. Since the same overall increase in corporate value is being distributed over twice as many shares in the post-split senario, each share would only increase by $5, not $10! Likewise with dividends. The same overall dividend distribution must now be spread over twice as many shares. So the dividend per share would be (all other things being equal) only half as much in the post-split senario. After a split, you have twice as many shares of stock, they are each worth only half as much, and any future increases in stock price and dividend declaration will be only half as great, on a per share basis. TANSTAAFL [There ain't no such thing as a free lunch.] Since stocks are often bought in hundred lot units, reducing the stock price by splitting the stock makes it more affordable to future small investors. But stock splitting does not make the current investor any richer. [/QUOTE]
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