Stock Split, Reverse Stock Split and Stock Dividend
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.
Number of shareholders may increase faster because of the more affordable price after the split
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
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)
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.
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.
If a listed company has fewer than 300 shareholders it can apply to exempt from reporting to the Stock Exchange Commission
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
Advantages Not necessary to report to the SEC Cost saving
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.
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
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
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