Market capitalization is a calculation that takes the total number of outstanding shares multiplied by the price per share of a company. You cannot define a stock split without also defining what market capitalization is. It is believed that the cheaper a stock is, the more liquid it becomes, and the more available that stock is to trade. Liquidity in this sense means the accessibility for a stock to be either bought or sold. Again, my total value of Fyooz Financial Planning stock did not change.Ī stock split is dividing a company's current share count into multiple to create more liquidity. Now that I have 20 shares, my price per share goes from $22/share to $11/share for a total value of $220. After the split, my total value does not change. Prior to the split, I had $220 of Fyooz stock (10 shares x $22/share = $220). Yay! More Fyooz stock, right?! Yes, more shares, but not more total value.Īlong with a stock share count, the price of the shares also gets adjusted. After the split, my share count goes from 10 to 20. For example, if I owned 10 Fyooz Financial Planning (FFP) shares, and issued a 2:1 stock split, I would get 2 shares for every one share of FFP that I own. In this blog, I’m going to educate you about what they are, why they’ve made the news, and what to do now that Apple and Tesla made their recent stock split announcement.Ī stock split is simply when a company divides their shares, based on a ratio of their choosing, causing there to be more shares available at a reduced price. Surprisingly, these are all terms I learned in my Investment Securities course, and terms that can appear in the financial headlines. S&P Dow Jones Indices does not comment on possible changes to its indexes.Spreads, calls, straddle, and splits. And the committee that makes the decisions often likes to remove stocks that have traded too cheaply for too long ( not always for the better). Two tech stocks sit near the bottom of the Dow right now -Intel and It’s fun to think about which stock might make it into the blue-chip index first, but don’t be surprised if they go in together. And after Alphabet made its announcement, Barron’s said that Amazon looked like it would be next in line to split its own. Entering the Dow is pretty much the only good reason left to split a stock.Īlphabet (GOOGL), of course, announced its own 20-to-1 stock split back in February, and it was immediately apparent that it had designs on the Dow. But now, it’s possible to buy fractional shares, so you can decide the exact dollar amount you want to buy, even if it’s $500 of a stock like that costs nearly $3,000 a share. Once upon a time, investors could only buy stocks in single shares, and even then they were frowned upon as “odd lots.” Most trades were (and still are) done in blocks of 100 shares. There aren’t many great reasons for splitting a stock these days. A stock with a nearly $3,000 price target would throw everything off in the Dow. TheĪre weighted by market capitalization, so that the largest companies get the largest weights. The Dow is a price-weighted index, which means that the stocks with the highest price get the greatest weight in the benchmark. That’s the sweet spot for joining the Dow, and it’s where (UNH) $485.57, with 15 of the 30 stocks in the benchmark trading at $100-and-something. If you look at the Dow Jones Industrial Average, no stock is worth less than