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Finance.presentation

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  • 1. Stock Split, Reverse Stock Split and Stock Dividend
  • 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
    • The price of the Stock goes down and seems more affordable to small time investors
    • Liquidity
    • increases with the stock's number of outstanding shares
    • 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
  • 6. Disadvantages
    • Number of shareholders may increase faster because of the more affordable price after the split
  • 7. Real life examples On Nov 5 th , 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
    • 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
    • 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”
    • 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
  • 15. Advantages Not necessary to report to the SEC Cost saving
  • 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 1 st 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 4 th , 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