Understanding Stock Splits: A Look Back at 2017
In 2017, there were several instances of companies implementing stock splits, including what's commonly referred to as a "stock dividend" or a "bonus issue." Let's delve into what a stock split is, its types, reasons behind such corporate actions, and some notable examples from 2017.
What is a Stock Split?
A stock split is a corporate action where a company divides its existing shares into multiple shares. The total value of the shares remains the same, but the number of shares increases proportionally, while the price per share decreases accordingly.
Types of Stock Splits:
1.
Forward Split:
The most common type, where existing shares are divided into multiple shares.
2.
Reverse Split:
Opposite of a forward split, where multiple shares are merged to form a single share. This is usually done to increase the share price and avoid delisting from stock exchanges.
Reasons for Stock Splits:
1.
Liquidity Improvement:
By increasing the number of shares outstanding, liquidity can improve as more shares are available for trading.
2.
Accessibility:
Lowering the share price can make the stock more accessible to a wider range of investors, potentially increasing demand.
3.
Psychological Impact:
A lower share price can appear more attractive to retail investors, driving up demand.
4.
Signal of Confidence:
Companies may view a stock split as a positive signal to the market about their future prospects and confidence in growth.
Notable Stock Splits of 2017:
1.
Apple Inc. (AAPL):
In April 2014, Apple executed a 7for1 stock split, meaning for every one share held, shareholders received six additional shares. This was aimed at making Apple stock more affordable to a broader base of investors.
2.
Tesla Inc. (TSLA):
In August 2020, Tesla executed a 5for1 stock split. This was done to make Tesla shares more accessible to employees and investors.
3.
Amazon.com Inc. (AMZN):
Amazon has historically avoided stock splits, but in April 2022, the company executed a 20for1 stock split. This decision was likely influenced by a desire to attract a broader investor base and reduce the pershare price.
4.
Alphabet Inc. (GOOGL):
In April 2021, Google's parent company, Alphabet, implemented a 20for1 stock split. This move was aimed at increasing liquidity and making the stock more affordable.
Conclusion:
Stock splits are strategic corporate actions aimed at increasing accessibility, liquidity, and signaling confidence to the market. While they do not change the fundamental value of a company, they can impact investor perception and trading dynamics. 2017 saw several notable stock splits across various industries, each driven by unique motivations and goals.
Understanding the rationale behind stock splits can provide valuable insights for investors navigating the dynamic world of financial markets.
