Corporate Actions

Stock Splits
When a stock's price increases significantly, investors may become reluctant to buy because they think the stock has reached its peak or because they believe it's too expensive. In this scenario, a company might decide to stimulate trading through a stock split. Splitting the stock will simultaneously increase the number of shares available for purchase and decrease the price. The total market value of the trading shares will remain the same.

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For example, if a company's stock is trading at $50 per share and it declares a two-for-one split, you now own two shares for each share that you previously owned. At the same time, the value of each share drops in half, to $25 per share. If you originally owned 100 shares of the company trading at $50 per share, you now own 200 shares trading at $25 per share. After the split, the market value ($5,000) stays the same. Stocks can split three-for-one, three-for-two, ten-for-one, or any other combination.

Although the value of your shares will initially be the same, the company anticipates that an increased level of trading at the lower price will begin to move the stock price back up, closer to its pre-split price.

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The information and content provided in the Scottrade® Knowledge Center is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.