When a company splits its stock, it divides its number of existing shares into multiple shares. A stock split immediately impacts existing shareholders because the number of shares they own will increase by the multiple of the stock split. For example, in a 2-for-1 split, the amount of shares an investor holds will double. So, 20 becomes 40, 40 becomes 80 and so on.
However, the dollar amount of the shares owned would stay the same because the share price would be cut by the same multiple. Therefore, in a 2-for-1 split, if they owned 20 shares of a stock priced at $100, they would now own 40 shares, but the stock would be priced at $50.
Stock splits are normally initiated by a company because they believe its stock price has reached a price that may be keeping many investors away. By offering their shares at a more accessible price, companies hope to increase interest in its stock.
In theory, the opportunity to increase the base of investors causes the stock price to move higher after the split. Here are three companies to watch.
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