Topic: How To Invest

Pat: Can you comment on why some companies split their shares, while others seem content to let their share prices increase instead? As well, I notice that while Google announced a plan to split its stock earlier this year, it seemed a lot more complicated that a normal split. Can you explain what happened in this specific case, and why don’t the shares seem to have split yet? Thanks.

Article Excerpt

When a company splits its shares, it is simply cutting itself up into a different number of pieces without changing its fundamental value. It simply wants its stock to trade in a price-per-share range that seems reasonable to investors. Mechanics of a split: If a stock’s price rises much beyond $50 a share in Canada (or $100 a share in the U.S.), some investors may shun it, since it seems expensive. The company’s management may then declare a stock split of, say, two for one. This turns one “old” share into two “new” shares. If you owned 100 shares of a $60 stock, you now own 200 shares of a $30 stock. You don’t need to take any action. After a conventional stock split, good news often follows. Companies mainly split their shares when they want to draw attention to themselves—because they expect earnings to rise faster than normal, say. At such times, they may also raise their dividends. However, sometimes companies…