Video Lesson
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Understanding Stock Splits
A stock split is when a company divides its existing shares into multiple shares. This article explains what stock splits are, common split ratios, why companies do them, and what they mean for investors.
What is a Stock Split?
A stock split divides existing shares into more shares while keeping your total investment value the same. The share price decreases proportionally. Companies split stocks to make shares more affordable.
Common Split Ratios
- 2-for-1: Each share becomes two shares
- 3-for-1: Each share becomes three shares
- 4-for-1: Each share becomes four shares (Apple did this in 2020)
- 10-for-1: Common for high-priced stocks like Amazon
Why Companies Split Stock
- Make shares affordable for retail investors
- Increase trading liquidity
- Psychological appeal of lower prices
- Signal confidence in future growth
What Splits Mean for You
- Your total investment value doesn't change
- You'll own more shares at a lower price
- Dividends adjust proportionally
- No immediate tax consequences