Topic: How To Invest

Q: I would like your opinion on why it seems companies don’t seem to split their shares as much as they did in the past, when values exceed a threshold amount of, say, $100.00 a share. If they did, it would make it much easier for small investors, like myself, to afford good quality stocks that have become too expensive. Can you explain why it seems that stocks very rarely split these days?

Article Excerpt

A: When a company splits its shares, it is simply cutting itself up into a different number of pieces, without changing its fundamental value. It 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. The total value is the same. 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…

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