Apple and Tesla announced two weeks apart from each other that they would be undergoing stock splits. Companies typically take part in a stock split to make shares more affordable to investors and to boost the stock’s liquidity.
What is a stock split?
Each stock that is publicly traded has a certain number of shares outstanding. A board of directors can decide to increase the number of shares outstanding by issuing more shares to current shareholders via a stock split. A stock split is a type of corporate action that impacts the number of shares and the price per share, but not a company’s market cap or your percent ownership.
For example, company XYZ has 1 million shares outstanding trading at €50 and therefore a market cap of €50 million. If the company underwent a 2-for-1 split and you held 1 share, you would now have 2 shares trading at €25 per share. Company XYZ’s market cap would remain at €50 million.
Tesla’s 5-for-1 stock split
Tesla published an announcement on 11 August 2020 whereby share prices will become more affordable to investors with a 5-for-1 stock split. The electric car company has been a favourite among our investors so far this year as it has been traded the most every month in at least one country that we are active in. However, with share prices increasing by 228.5% from the beginning of the year to the time of the announcement, buying a share for over $1,300 may be out of reach for some or may weigh too heavily in a portfolio.
Each stockholder as of 21 August 2020 will receive four additional common shares for each share held as a dividend. The additional shares will be distributed after trading closes on 28 August 2020, after which will begin trading on a stock-split adjusted basis on 31 August 2020.
Apple’s 4-for-1 stock split
On 30 July 2020, Apple announced a 4-for-1 stock split, which will be its fifth split since it started trading. When Apple made the announcement, share prices were trading at $384.76, 31.03% higher than the beginning of the year. The iPhone maker said that this will make Apple stock more accessible to more investors.
For every share held as of the record date 24 August 2020, you will receive three additional shares. The stock will split on 28 August 2020 and on the ex-date, 31 August 2020, shares will start trading on the exchange at the new split-adjusted price.
The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written.
Sources: Bloomberg, Tesla, Apple
