April 17, 2023

Benefits of Splits

benefits of splits

Benefits of Splits

For many retail investors, splits make stocks appear more within reach. A stock that trades for $100 per share is more attractive to them than one trading at $1,000. This can help drive prices higher, because it increases demand.

A two-for-one split is a popular example of a stock split. This means you'll receive two shares for every share you own before the split.

The main reason a company might split its shares is to make them more affordable for investors. This is especially true if the share price of the company is growing very rapidly and they want to make the stock more affordable for smaller investors.

This also helps companies to reward shareholders for their loyalty by increasing their dividends. Generally, companies that execute a stock split do so because they're in good financial shape and have performed well enough to justify the slashing of their prices.

Another positive effect of splits is that they can improve liquidity, which in turn can increase index inclusion. This is especially useful for indices that use price-weighted inclusion.

Liquidity benefits are important because they make it easier for companies to sell their shares to the public. This can be especially beneficial for a small or mid-sized business that needs to raise capital, because it can be difficult to find investors willing to purchase shares that are already listed in the market.

A stock split is a good way to boost a company's liquidity and can even lead to increased dividend payouts. It can also improve the stock's visibility to potential investors, which can be a good thing in a market that's volatile.


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