Question : Should I buy a stock that has had a stock split?
FINANCIAL ADVISER: A stock split is a subdivision of shares to reduce the price of the stock to a level within which most stocks trade. The more successful companies are, the more likely it is that their stock will trade at high nominal prices, so they tend to be the ones that have stock splits.
The process by which a stock split comes about is generally like this. The directors propose it, and it is then put to the shareholders at a regular or extraordinary meeting of the shareholders for their approval. An annou-ncement stating the basis of the split such as it being a two for one split is then made. The record date and payment date – the date on which the stock split takes effect – are also given.
The record date is important. It is the date that determines who is entitled to the stock split. Shareholders whose names are on the shareholders register are the ones eligible for the stock split. The register generally closes a few days before the record date on what is called the ex-stock split date.
Purchasers of stock from then to the payment date are not eligible for the shares bearing the old nominal value, a fact that is reflected in the price being adjusted to reflect the split. This means that 10,000 shares bought in the ex-stock split period will not become 40,000 shares, where there is a four for one split.
The stock split affects the total number of shares in issue, the par value of each unit of stock, the number of shares each shareholder owns, the market place, and the dividend per share.
Leave A Comment