<< A stock split or stock divide increases the number of shares in a public company. The price is adjusted such that the before and after market capitalization of the company remains the same and dilution does not occur. Options and warrants are included. >> Wikipedia.
I first learned about stock splits fresh out of school. I went to bed with 30 shares and woke up with 90 shares.
That was super awesome but the price had dropped and then I am looking at the number of shares and singing praise God!
Companies split stocks when their share price becomes too high and they need more people to buy their shares so making it cheaper allows people to enter.
IMO (Imperial Oil Ltd.) always splits when it gets in the $90 per share area. They have usually done a 3 for 1 split.
So your shares worth $30 and you have 30 of them (when I had my 30) are all of a sudden translated into 90 shares at $30 a piece. But the market reacts violently so you watch your share price drop to the area of $25 and the whole time you are on your smart phone calculating to see if the split was worth it or not. But come on, 90 shares at $25 are better than 30 shares at $30.
XOM usually splits 2 for 1 but only when it is high like in the $150-$200 range. I think I had something like 10 shares and watched it climbing up and woke up one day with 20 shares and its price did not tank.
So I went on the internet to find out why splits were working well.
Most investors would rather keep their stocks and cash in later. You can ask Buffet and Soros why they buy and hold.
Investors also designate their dividends (quarterly) to be re-invested in more stock. So when a stock price goes down, they get more shares at a cheap rate and reduce their average cost per share (capital gains tax bites).
When the stock price goes up, they take out a bit of money or the stock splits.
Splitting is a money maker. In fact you can use the internet to find out which companies have splits coming up and then you get in and get rich. Thank me later via my mobile money account.
Martha Leah Nangalama
I have a solid IT and business background.
Disclosure: I own oil shares and my kids own mutual funds which have a mix of oil, banks, insurance, etc.