What Are Stock Splits and Why They Happen?
A type of corporate action where a company's existing shares are divided into multiple shares. Although the amount of shares outstanding increases by a specific multiple, the total dollar value of the outstanding shares remains the same compared to pre-split amounts. No real market value has been added or subtracted as a result of the split.
Stock splits happen when a company's share price has grown beyond the average investors purchasing ability. To many investors, the shares are too expensive to buy. You own 100 shares of XYZ at $100 a share. 100 shares x $100 per share is a $10,000 investment. XYZ announces a 2 for split. After the split, you will now own 200 shares of XYZ at $50 a share. You dollar investment stays the same, 200 shares x $50.00 a share is $10,000. Now all investors can buy XYZ at $50 a share.