Stock Splits, Stock Dividends, and Reverse Splits

     Seasoned investors have noticed something about the stock market that has evolved over the last 20 years or so: stocks just don't seem to split anymore. In the old days, when a stock approached the $100 mark, the board of directors would often approve a stock split to lower the price to a more affordable level. Retail investors like a lower stock price so they can buy a "round lot" which is 100 shares. Anything less than 100 shares was called an "odd lot" and the broker charged more for it in commissions. Nowadays, with all the discount brokerages offering cheap commissions, trading in odd lots is not expensive anymore. One example of a common split would be the 2for1 split. If you held 100 shares before the split, you would own 200 shares after. For every one share you owned, they gave you an additional share, thus 2for1. A look at the stock market page today shows more stocks over $100 than under. Some stocks are even trading over $1000 and have no plans to split. So why don't stocks split anymore? One reason may be that companies don't care if retail investors are buying their shares directly. With the popularity of mutual funds and ETF's, a lower stock price is irrelevant. Companies can still have a widely-owned stock and not incur the cost of sending every holder annual reports. The fact is that an investor makes no money in a split. Even though the number of shares held increases, the price is adjusted down to make the holding in dollars unchanged. Stock dividends are also a rare occurrence these days. It used to be that when a rapidly growing company needed to reward investors, they could issue additional shares instead of cash which was needed to fund their growth. A stock dividend would not result in the repricing of the shares and it usually was expressed as a percentage of shares owned.  A reverse split has the opposite effect as a forward split. It is used as a tool to increase the stock price and reduce the shares outstanding. An example would be if you owned 100 shares of XYZ corp and they declared a 1 for 50 reverse split, you would end up with 2 shares. Of coarse, the stock price would increase by a factor of 50 but your holdings in dollars will not change. Companies use reverse splits to boost their stock price when it gets so low that they are in danger of being removed from the index or exchange where they are trading. Another result of a reverse split is that many investors are forced out because their holdings are reduced to a fraction of a share which is automatically sold. This reduces costs for the obviously troubled company. Bottom line, healthy companies are reluctant to split their stock anymore.  In 2017 the total number of splits numbered in the single digits. So if you are hoping for a split of one or more of your holdings-don't hold your breath.