What is the stock split and why is Apple doing it? How the stock split affects investors

An initial public offering allows a company to deliver shares to private investors. A stock split is the division of the shares that a company owns into several stocks. This is put in place to improve the liquidity of stocks when they reach a specific accumulation limit. A common strategy is to divide them into a 2-for-1, 3-for-1, or 4-for-1 ratio, and the shareholder now owns 2.3 or 4 shares for each previous stake, respectively.

In the past, several companies have occasionally practiced stock splitting. Apple’s stock was split in 2014, bringing its share price from $ 645.57 to just $ 92.44. On July 30, 2020, Apple announced a 4-for-1 stock split for the fifth time. The company has already experienced a 10% increase in its share price following the decision.

Why do they want to do it?

It is a matter of optical perception. In technical terms, the accumulated equity value of the company remains the same. Only the division of those outstanding shares is increased. Consequently, the price per share is reduced. Thus, it lowers fees without a tangible impact on the business, attracting investors who want to own a piece of the business at affordable prices.

Furthermore, it is in the company’s best interest to take this initiative. Potential investors psychologically would be more inclined to acquire 10 shares worth $ 100 than 1 share of the same value. As they invest more and more, the total price increases. Therefore, it is beneficial for both parties.

What about your investment?

The stock split does not add any monetary value to your investments. Only the number of shares you will have now will be amplified by a specific multiple. In the case of the recent announcement of Apple’s stock split on a 4-for-1 basis, for example, shareholders will find themselves with 4 shares for every previous share, with the same dollar value.

What about dividends?

If the shares are divided after the registration date, the dividend is stipulated as usual. Apart from this, the amount of the dividend per share is reduced. However, the total monetary value of the dividend remains unchanged.

How do we see it?

Stock splitting can reasonably be seen as a successful marketing strategy adopted by companies to attract investors without any impact on their equity value. As share prices are lowered, buyers rise and demand increases. Many companies routinely perform stock splitting to achieve that exact effect.

All in all, it’s a positive sign that the company sees the stock price going even higher, and that’s why I would suggest investing in Apple stock to make the right investment. If we had invested in early 2016, then our investment would have multiplied by 4.5 times. So imagine, let’s invest well by investing in Apple.

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