stock split

noun

Definition of stock split 

: a division of corporate stock by the issuing to existing shareholders of a specified number of new shares with a corresponding lowering of par value for each outstanding share — compare stock dividend

Examples of stock split in a Sentence

Recent Examples on the Web

In late June, Helios and Matheson proposed doing a one-time reverse stock split, which analysts saw as a way to bolster its stock price. Sarah Toy And Emily Bary, WSJ, "The Spectacular Rise and Fall of MoviePass," 9 July 2018 Korea Exchange said in a statement the bourse plans to improve its systems to become more like the U.S. and Japan, where little time is needed for stock splits. Fortune, "Want to Trade Samsung Stock Monday? You'll Just Have to Wait," 27 Apr. 2018 After the stock split and paying a regular quarterly dividend, the company also will pay a $1 special cash dividend to stockholders of record on April 2. Grace Schneider, The Courier-Journal, "Brown-Forman is using tax cut money to create a massive foundation and pay shareholders," 24 Jan. 2018 The sale could potentially drop the trust below a stock threshold that allows the trust to hold a board seat, but Dziczek noted some confusion on that end because of a stock split several years ago. Eric D. Lawrence, Detroit Free Press, "Why is UAW retiree health care trust selling $1.57 billion worth of GM stock?," 28 Feb. 2018 On the other hand, an investor could argue that a fork is not immediately taxable in the same way a stock split is not taxable until shares are sold, said San Francisco tax lawyer Robert Wood. Kathleen Pender, San Francisco Chronicle, "Bitcoin taxes: plenty of questions, no easy answers," 10 Feb. 2018 Because the American eel comprises a single stock split into smaller populations along the entire Atlantic coast, Feigenbaum says a decision to close or limit the Canadian elver fishery would only hurt Canadian fishermen. Karen Pinchin, Smithsonian, "The Epic Fight Over the Enigmatic Eel," 5 Feb. 2018 Berkshire Hathaway has always been the quintessential buy-and-hold company—and helps ensure that its Class A shareholders are focused on the same long-term goals by refusing, for example, to indulge in gimmicks like stock splits. Clifton Leaf, Fortune, "Amazon–J.P. Morgan–Berkshire Hathaway: What Their New Health Venture Really Means," 31 Jan. 2018 In 2018, her initial $250 investment in 20 or 40 shares of her local company Boeing has turned into 400 shares through stock splits and the reinvestment of dividends. Michael Taylor, San Antonio Express-News, "Make a fortune using benign neglect," 29 Jan. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'stock split.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of stock split

1950, in the meaning defined above

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The first known use of stock split was in 1950

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More Definitions for stock split

stock split

noun

Financial Definition of stock split

What It Is

A stock split is a procedure that increases or decreases a corporation's total number of shares outstanding without altering the firm's market value or the proportionate ownership interest of existing shareholders. This action, which requires advance approval from the company's board of directors, usually involves the issuance of additional shares to existing stockholders.

How It Works

Before announcing a stock split, a firm's board of directors must first decide on a distribution rate. Typically expressed as a ratio (such as 2-for-1, 3-for-1, etc...), this distribution rate will determine exactly how many shares of stock the firm hands over to its existing shareholders.

Let's assume XYZ Corp, which has two million shares outstanding, is trading for $30. In this case, the firm's total market value, or market capitalization, is $60 million (2 million x $30/share). After a two-for-one stock split, the firm's number of shares will double to four million, while the value of those shares will be cut in half to $15. However, the company's total market capitalization will remain the same at just $60 million (4 million* $15/share).

Taken from another perspective, let's suppose you held 100 shares of XYZ before the split. Prior to the split this total position would have been worth $3,000 (100*$30/share). After the split takes place you will then hold twice as many shares (200 shares), but the firm's share price will be cut in half to $15. The net value of your position will remain unchanged at $3,000 (200*$15/share).

In the end, splits accomplish little more than simply slicing a pie into thinner pieces. Though an investor may acquire more of those slices, or shares, after a split, neither the company's value nor his/her ownership interest will materially change.

Why It Matters

If the net effect to current shareholders is zero, then why do companies choose to split their stock? Typically, a firm's board of directors decides to split its stock in an effort to reduce its share price. After all, high prices can act as a deterrent to prospective buyers -- particularly smaller ones. A stock split will reduce a company's share price to a level that is hopefully seen as more affordable to a broader range of investors.

The point at which management decides to institute a split is also fairly arbitrary, as some companies routinely split their stocks at $50/share, while others may wait until prices exceed $100. Some firms, such as Wal-Mart (WMT), have historically split their shares frequently. Meanwhile, others have done so sparingly. Berkshire Hathaway (BRKa), run by famed investor Warren Buffett, has never completed a stock split. As a result, the company's shares now trade for tens of thousands of dollars each.

Certainly, most companies prefer that to keep their share prices at a much more affordable level. The goal here is to make their stock accessible to as many investors as possible. Of course, companies also do not want their shares at the other extreme either. When a company's shares languish in so-called "penny stock" range, trading for only a few dollars per share (or even less in many cases), they usually fall below the radar screens of institutional investors. Not only will the company likely lose analyst coverage, but if its share price falls too far the firm might also run the risk of being de-listed from whatever exchange it is traded on. (Most exchanges have certain share price requirements that companies must meet in order to stay listed.) Troubled firms stuck in this position will sometimes employ a reverse split. Though the move will not increase the company's overall value by a single penny, it will lift the firm's shares to what is generally regarded a more respectable price range.

Source: Investing Answers

stock split

noun

Legal Definition of stock split 

: the division of the outstanding shares of a corporation into a larger number of shares thereby reducing the value of each share but not the total value of each holding — compare reverse stock split

Note: The purpose of a stock split is to make the stock more attractive to potential investors by reducing the price per share.

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