A four-for-one stock split is when one share of stock is divided into four equal shares while keeping the market value the same price, according to the Securities and Exchange Commission, or SEC. A stock split reduces the number of shares to make the share price more affordable.
Instead of issuing new shares that can reduce the price of the individual share, companies will split shares to make more stock available while keeping the market value the same, as noted by the SEC.
In a four-for-one split, a shareholder will receive three additional shares of stock as a dividend. Companies want to make their stock available to as many shareholders as possible, as stated by Principal Financial Group. More shareholders allow the company to have more visibility in the business community. A stock split gives shareholders more shares and is a financial sign the company is growing, as noted by Principal. If the price of a stock keeps rising, companies continue to split the stock to keep shares available on the market.
Stock splits take many forms and combinations. In some cases, a reverse stock split will take place if a company wants to reduce the number of outstanding shares. In that case, the company may issue a one-for-two split.