What Is a Stock Split? What Happens to the Share Price
Sometimes an investor wakes up to find they have 4 times as many shares at a quarter of the price. That's a split. Here's why companies do it and whether it changes anything for you.
What it is
A split divides shares: each share turns into several, and the price is divided in the same proportion. Your stake in the company and the total value of your holding don't change.
| Before a 4:1 split | After | |
|---|---|---|
| Shares | 10 | 40 |
| Price | $400 | $100 |
| Holding value | $4,000 | $4,000 |
For example, Apple did a 4-for-1 split in 2020.
Why companies do it
- The price of a single share becomes more affordable for retail investors.
- Liquidity increases — the shares are easier to trade.
- Companies often split after a strong price rise.
Reverse split
Several shares are combined into one. This is usually done by companies whose shares have fallen a lot in price. It's a reason to take a close look at the company's financial statements.
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- A split changes the number of shares and the price, but not the value of your holding.
- The company's business doesn't change.
- A split alone is not a reason to buy.
Frequently asked questions
Do I need to do anything during a split?
No. Your broker will recalculate the number of shares and the price. Sometimes this takes a day or two.
Is a split a good sign?
It often happens at companies whose price has risen a lot. But it says nothing about future growth.
What happens to dividends after a split?
The dividend per share decreases in the same proportion, while the total payout on your holding stays the same.
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