Advantages of Stock Splits

A stock split is an action taken by a company to decrease the price of  shares by increasing the number of shares available, so that the total dollar value of the shares remains the same as before the split. There are a number of ways in which the companies can split their stocks, such as two-for-one, three-for-two, three-for-one, etc. This requires approval from the board of directors and the shareholders.

Following are some of the major advantages of a stock split:

1) Splitting the stock brings the share price down to an attractive level whereby small traders will be able to invest more on these stocks.

2) A stock split is often seen as a positive indicator that a company is growing.

3) Due to the lower prices, there will be more investors willing to buy and therefore the companies build up more liquidity by splitting their stocks.

4) Current shareholders enjoy the pleasure of doubling or tripling the number of shares they own.

5) Companies that split their stocks have typically enjoy a big jump in share prices.

* Next: Examples of Stock Splits
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