An initial public offering allows a company to release shares to private investors. A stock split is the division of a company’s own shares into multiple shares. This is put into action to improve the liquidity of shares when they reach a specific accumulation edge. A common strategy is to split them 2-for-1, 3-for-1, or 4-for-1, with the shareholder now owning 2, 3, or 4 shares for each previous holding, respectively.

In the past, several companies have practiced stock splits. Apple stock split in 2014, taking its share price from $645.57 to just $92.44. On July 30, 2020, Apple announced a 4-for-1 stock split for the fifth time. The company has already seen a 10% increase in its share price following the decision.

Why do they want to do it?
It is a matter of optical perception. In technical terms, the value of the company’s accumulated capital remains the same. Only the division of those outstanding shares is increased. Consequently, the price per share is reduced. Thus, it lowers rates without a tangible impact on the business, attracting shareholder investors who want to own a piece of the business at affordable prices.

In addition, it is in the company’s interest to take this initiative. Potential investors would psychologically be more inclined to purchase 10 shares worth $100 than 1 share worth the same amount. As they invest more and more, the total price increases. Therefore, it is a win-win for both parties.

What happens to your investment?
The stock split does not add any monetary value to your investments. Only the number of shares you will now have will be scaled by a specified multiple. In the case of Apple’s recent 4-for-1 stock split announcement, for example, shareholders will find themselves with 4 shares for each previous share, with the same dollar value.

What about the dividends?
If the stock splits after the record date, then the dividend is stipulated as usual. Apart from this, the amount of the dividend per share is reduced. However, the total monetary value of the dividend is not changed.

How do we see it?
Stock splits can reasonably be seen as a successful marketing strategy adopted by companies to attract investors without any impact on the value of their capital. As stock rates decline, they are met with a surge of buyers driving their demand. Many companies routinely carry out stock splits to achieve that exact effect.

Overall, it is a positive sign that the company sees the stock price rising further, which is why I would suggest investing in Apple stock to make the right investment. If we had invested at the beginning of 2016, our investment would have multiplied 4.5 times. So imagine, and let Invest well by investing in Apple.