2. What is a Stock Split?
The partitioning of outstanding
shares of a company into a larger
number of shares, without affecting
stockholders' equity or the total
market value of the stock.
Ratios of 2-for-1, 3-for-1, and 3-for-2 splits
are the most common, but any ratio is
possible.
3. Why are Stock splits done?
Psychology
I. The price of the
Stock goes down and
seems more
affordable to small
time investors
Liquidity
I. increases with the
stock's number of
outstanding shares
II.when stocks get into
the hundreds of
dollars per share,
very large bid/ask
spreads can result
4. What does a Stock Split
mean to Investors?
The overall number of shares available
for purchase increases
Shares become more affordable for new
investors
5. Advantages
Stock splits are a good buying indicator,
signaling that the company's stock is
rising and therefore doing well
7. Real life examples
On Nov 5th
, 2010 a dividend increase and
2-for-1 stock split helped send Magna (MG-
T) shares rocketing higher
8. Real life examples
Aerospace instrument maker Ametek Inc.
will conduct a three-for-two stock split in
December.
Despite the stock split, the company's
quarterly dividend will be unchanged at
6 cents per share.
(A 33% increase)
9. Real life Examples
Facebook said Friday that it is doing a 5-
for-1 stock split, marking the third split
in the company's history. The privately
held social networking company,
founded in 2004, previously executed 4-
for-1 stock splits in 2006 and 2007.
10. What is a Reverse Stock
Split?
A Reverse Stock Split is a process by a company
of issuing to each shareholder in that company
a smaller number of new shares in proportion
to that shareholder's original shareholding
which is canceled It is the opposite of
a stock split , i.e. it is a stock merge — a
reduction in the number of issued shares
New shares are typically issued in a simple ratio,
e.g. 1 new share for 2 old shares, 3 for 4, etc.
11. Why are Reverse Stock
Splits done?
Avoid the Stock from being delisted
I.If a company's stock is trading below $1
for 30 days the NYSE or NASDAQ may
delist the stock and suspend trading
12. Why are Reverse Stock
Splits done?
Increase Stock Price
I. Reverse Stock splits will increase the
value per Share and look more attractive
to high value investors
13. Why are Reverse Stock
Splits done?
“Going Dark”
I. If a listed company has fewer than 300
shareholders it can apply to exempt from
reporting to the Stock Exchange
Commission
14. What do they mean to
Investors?
Reverse Stock splits are usually an
indicator that the company is not doing
very well and is in danger of being
delisted
16. Disadvantages
Reduces overall amount of shareholders
Some investors might be unable to hold
onto their shares.
For Example 10-to-1 reverse split.
Investors holding 9 shares will have to
sell them back to the company.
17. Real life Examples
On Jun 1st 2
, 2009 AIG conducted a reverse
stock split of 20-to-1 to boost the share
price from $1.16 to $23.20 and avoid
delisting
18. Real life Examples
On Nov 4th
, Inuvo announced that it has
taken steps to initiate a one-for-ten
reverse stock split of the Company's
common stock to boost the stock price
from currently $0.36 to $3.60 and avoid
being delisted
19. What is a Stock dividend?
Companies may decide to distribute stock to
shareholders of record if the company's
availability of liquid cash is in short supply.
For example paying 0.2 shares dividend for
every share held
20. Why are Stock Dividends
done?
If a company pays out dividend to its investors
the price of the stock will fall roughly by the
amount of the dividends. This is the result of the
economic value transfer.
A stock dividend, on the other hand, is an
increase in the amount of shares of a company
with the new shares being given to shareholders
and does not result in a drop in share value
21. What do Stock Dividends
mean for Investors?
The overall number of shares available
for purchase increases
Shares become more affordable for new
investors
Money reserved for Dividends will be
retained in the company for further
investments
22. Advantages -
Disadvantages
Money will be
retained in the
company for
future
investments
No value gain for
Investors
Investors might be
inclined to sell
their stock
because of lack of
dividend
23. Real life Examples
Banco Santander UK announced a 0.013
stock dividend plan for 2011 dividends.
For every 78 shares currently held,
investors will receive 1 additional share
