Most corporations rely, depend and thrust subtle resolutions to their corporate financial statements without taking the burden to reflect on certain factors such as dividends when their company stocks (shares) splits. Read more on this topic.

When companies decide to split their stocks, they often focus on the immediate financial implications and market perception. However, it’s essential to consider factors like dividends, as these can significantly impact shareholder value and the company’s financial health.

When a company undergoes a stock split, it increases the number of shares outstanding while proportionally reducing the price of each share. This action does not change the overall value of the company or the total value of an investor’s holdings. However, it can have implications for dividends:

1. Dividend Amount per Share: After a stock split, the dividend per share is adjusted to reflect the increased number of shares. For example, if a company pays a $2 dividend per share and undergoes a 2-for-1 stock split, the dividend per share would be adjusted to $1. This ensures that the total dividend payout remains the same.
2. Total Dividend Payout: The total amount of dividends paid by the company does not change due to a stock split. Shareholders will receive the same total dividend amount, but it will be distributed across a greater number of shares.
3. Dividend Record Date: If the stock split occurs after the dividend record date (the date by which one must be a shareholder to receive the dividend), the dividend is paid out as usual, and there is no impact on the payout.

In summary, while the dividend per share is adjusted, the total dividend payout remains unchanged, ensuring that shareholders receive the same overall value.

Companies often decide to split their shares for several reasons:

1. Increase Liquidity: By splitting shares, companies can make their stock more affordable and accessible to a broader range of investors, particularly retail investors. This can increase the stock’s liquidity, making it easier to buy and sell.
2. Attract Investors: A lower share price post-split can attract more investors who might have been deterred by a higher price. This can boost demand for the stock and potentially drive up its price.
3. Market Perception: A stock split can signal to the market that the company’s share price has been increasing, which may lead investors to believe that the growth will continue. This positive perception can further lift demand and prices.
4. Employee Incentives: Splitting shares can help companies create a more flexible and granular incentive pool for employees, making it easier to set affordable exercise prices for employee equity.
5. Options Trading: High stock prices can restrict options trading, as contracts typically involve multiples of 100 shares. A stock split can make options trading more accessible.

Summary:

Overall, stock splits are a strategic move to enhance the stock’s appeal and accessibility without changing the company’s market value.