Why do stocks split?


Quick Answer

The primary motive for a stock split is to reduce the price per share to make the stock more affordable to investors, according to the U.S. Securities and Exchange Commission. Investors often prefer splits over an issuance of new shares because a split doesn't dilute share value.

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Full Answer

The decision to split a stock is often based on the objection that some investors have to paying a high share price, according to The Motley Fool. It's a psychological trick of sorts. While the split does not change the company's financial health, people often associate the lower price per share with better value. A larger pool of shareholders vying for a stock supports shares and sometimes contributes to price gains.

Another motive to split stock is because a split often signals that company leaders have confidence in the ongoing value and growth of the company. Splits commonly occur at peak share prices, according to The Motley Fool, and the investment market often views a split positively. Thus, the split often contributes to further growth in share value.

Dividing the number of shares also means that more shares are traded in the marketplace on a regular basis, according to The Motley Fool. When shareholders possess more shares, they have more volume to sell to interested buyers.

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