Is a stock split good?

Companies often authorize stock splits to lower the share price and make ownership more affordable for a broader set of investors. It is neither good nor bad for the investor, as there is no effect on the company’s total market value with a stock split. As shares outstanding increase, each share’s value decreases proportionately, so there is no change in shareholder’s equity or market value for the company at the time of the split.

Why would a company split stock?

Companies often authorize stock splits to lower the share price and make ownership more affordable for a broad set of investors. A stock split increases the number of shares of stock outstanding without any change in shareholder’s equity or market value for the company at the time of the split.

For example, a two-for-one stock split would double the number of shares outstanding and give every shareholder two shares for every share owned, while reducing each share’s value by half. Instead of owning 10 shares at $100 per share, an investor would own 20 shares at $50 per share after a two-for-one split. 

How common are stock splits?

The number of stock splits varies every year. In general, most companies do not announce stock splits regularly, and they are not very common.