Hi, I have 1 share of Apple Inc. Apple has announced a 4-to-1 split. What will happen after the share split? What all are the benefits of it?
You will recieve 4 shares for each Apple share you hold, and Apple’s stock price will reduce from $400 to $100.
Companies split stocks to keep trading price lower, there no benefit as such.
Stock splits may also influence the likelihood of a company getting into an index such as the Dow Jones Industrial Average (NYSEARCA:DIA), which could then lead to additional demand from ETFs that replicate the index. In that way, a stock split can lead to higher share prices eventually, as the supply/demand ratio changes.
In theory, a stock split does not change the value of the underlying company; it just leads to the company being divided into more individual shares. There are, however, some psychological factors at play that can lead to share price performance being influenced by stock splits. First, shares may appear cheaper at first sight for those that do not look at metrics such as the earnings multiple, which may incite buying. On top of that, some investors seem to erroneously believe that buying shares before a stock split will somehow get them a larger part of the company once the stock split happens, which is, of course, not true. Investors will end up owning more shares than they originally purchased pre-split, but those shares won’t amount to a greater ownership of the company.