What is a stock split?

Cheat Sheet:

  • A stock split divides up the company into more shares so each share is more affordable.
  • The overall company’s value doesn’t change, nor does the total dollar amount of stock you own.
  • Stock splits are decided by the company’s board of directors.

Owning 1 share of stock worth $50 is the same thing as owning 2 shares worth $25 a piece, right?  A stock split divides the company into more shares so that each share is more affordable.

In a 2-for-1 stock split, the company doubles the number of shares and each one is worth half as much.

Apple did a 7-for-1 split in June 2014. Its stock was trading at about $645 per share before the split, which made it unaffordable for the average investor. After the split, the stock traded at about $92 per share, which made it more affordable for people to own Apple stock.

In fact, Apple has split its stock four times since its IPO in 1980:

    • 7-for-1 in June 2014
    • 2-for-1 in February 2005
    • 2-for-1 in June 2000
    • 2-for-1 in June 1987

To compare Apple’s stock price today with its stock price in the past, you need to account for these splits. Otherwise, it wouldn’t be a fair comparison. When Apple went public in 1980, its stock price was $22 a share. To compare that to today’s price, you need to divide by 56 to adjust for all the splits (2 x 2 x 2 x 7 = 56). $22 divided by 56 = 39 cents, which means a share worth $150 today would have cost only 39 cents back in 1980. Amazing, huh? That’s how well Apple stock has done over the years!

previous lessonnext lesson