An initial public offering allows a company to release shares to private investors. A stock split is the division of a company’s own shares into multiple shares. This is put into action to improve the liquidity of shares when they reach a specific accumulation edge. A common strategy is to split them in a ratio of 2 for 1, 3 for 1, or 4 for 1, with the shareholder now owning 2, 3, or 4 shares for each previous holding, respectively.

In the past, several companies have practiced stock splits. Apple shares split in 2014, taking 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 seen 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 value of the company’s accumulated capital remains the same. Only the division of those outstanding shares is increased. Consequently, the price per share is reduced. Thus, it lowers rates without a tangible impact on the company, attracting shareholder investors who want to own a piece of the company at affordable prices.

In addition, it is in the company’s interest to take this initiative. Potential investors psychologically would be more inclined to purchase 10 shares worth $100 than 1 share worth the same amount. As they invest more and more, the total price increases. Therefore, it is a win-win for both parties.

What about your investment?

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

What about dividends?

If the stock is divided after the record date, then the dividend is stipulated as usual. Apart from this, the dividend amount per share is reduced. However, the total monetary value of the dividend does not undergo any change.

How do we see it?

Stock splits may well reasonably be seen as a successful marketing strategy adopted by companies to attract investors without any impact on their capital value. As stock rates fall, they find an increase in buyers driving their demand. Many companies routinely carry out stock splits to achieve that exact effect.

Overall, it is a positive sign that the company sees the share price rising further, and this is why I would suggest investing in Apple stock to make the right investment. If we had invested at the beginning of 2016, our investment would have multiplied 4.5 times. So go figure, and let Invest Well by investing in Apple.