An initial public offering lets a company release shares to private investors. A stock split is the division of owned shares by a company into multiple shares. This is put into action to enhance the liquidity of the shares when they get to a specific brink of accumulation. A common strategy is to split them on a 2 for 1, 3 for 1, or 4 for 1 ratio, with the stockholder now owning 2,3 or 4 shares per every previous holding respectively.
In the past, several companies have on occasions practised stock split. Apple stock split in 2014, taking its share price from $645.57 to just $92.44. On July 30, 2020 Apple announced a stock split 4 for 1 for the fifth time. Already, the company saw a 10% increment in its stock price following the decision.
Why they want to do it?
It is a matter of optical perception. In technical terms, the cumulative capital value for the company remains the same. Only the division of those outstanding shares is increased. Accordingly, the price per share is decreased. Thus it lowers the rates without a tangible impact on the company thereby attracting stockholding investors who desire to possess a portion in the company at affordable prices.
Moreover, it serves the company well to take this initiative. Potential investors psychologically would be more inclined towards acquiring 10 shares worth $100 than 1 share worth the same amount. As they invest more and more, the total price increases. Thus it’s a win-win for both parties.
What happens to your investment??
The stock split doesn’t add any monetary value to your investments. Only the number of shares you will now have will be amplified by a specific multiple. In the case of Apple’s recent stock split announcement on a 4 for 1 basis for example, stockholders will find themselves 4 shares per every previous share, on the same dollar value.
What about dividends?
If the stock is split after the date of the record, then the dividend is stipulated as usual. Apart from this, the dividend amount per share is reduced. Yet the total monetary value of the dividend doesn’t undergo any change.
How do we see it?
Stock splitting may well reasonably be seen as a successful marketing strategy taken by companies to attract investors without any impact on their capital value. As the rates of shares are reduced, they find themselves increased buyers boosting their demand. Many companies routinely carry out stock splitting in order to achieve that exact effect.
Overall, it is a positive sign that the company sees the share price to increase further, and this is why I would suggest investing in Apple Stock to make the right Investment. If we had invested earlier in 2016, then our investment would have been multiplied 4.5times. So imagine, and lets Invest right by investing in Apple.