08-21-01 08:04 AM EST | TULSA, Okla. -(Dow Jones)- Aaon Inc. (AAON) declared a 3-for-2 stock split, payable Sept. 28 to shareholders of record as of Sept. 10. Cash will be paid in lieu of fractional shares. In a press release Tuesday, the company said shares outstanding will rise to about 8.7 million from 5.8 million, based on the number of shares outstanding on July 31
Aaon Inc. (AAON) declared a 3-for-2 stock split*rolling eyes* Stupid stock splits.... Not even an easy one to work out in my head either. *grumbling*Why? Why must apparently good companies do such useless things? *grumbling more*-- Ryan
*rolling eyes* Stupid stock splits.... Not even an easy one to work out in my head either. *grumbling*Why? Why must apparently good companies do such useless things? *grumbling more*I have a bank stock that did a 5 for 4 split recently. Couldn't figure that one out, but the dividend (per share) dipped for one quarter (from 10 cents to 8 cents), as expected for a split, but is now back at 10 cents per share. I just wish they would have declared an increased dividend, rather than give me an odd number of shares, and cash for the fractional share. Anyone know why a company would do a 5 for 4? vuelta
> Why must apparently good companies do such useless things? *grumbling more*There is no intrinsic reason for a stock split. But there are only two reasons that I can think of for the company management deciding to do it.1) Some folks interpret a stock split as the company management having a lot of confidence in the future growth prospects.2) Some buyers have an arbitrary maximum that they will pay for a share of stock. How much would one share of GE stock be worth if the company had not done any stock splits in their 100+ years of existance?
Some buyers have an arbitrary maximum that they will pay for a share of stock. How much would one share of GE stock be worth if the company had not done any stock splits in their 100+ years of existance?Well, seeing as GE has been part of the DOW since the very beginning, and the DOW has grown at an average rate of about 10% annually, after 100 years, it would be up approximately 1,378,062%. Let's assume that in 1901, the stock traded at $10/share. (It seems to me that most "brand name" companies trade at at least that much.) And let's assume the stock never split. That would give a per-share price of about $137,806.It's probably a bit conservative since GE has probably been doing better than 10% annually and I don't think this includes dividends (but I could be wrong). If GE managed an annualized 15% return over the last 100 years, that would give us a per-share price of $11,743,135.Not too shabby huh?In any case (and I do have a point here), is that it's far too expensive for the typical person just starting to invest to buy into. Berkshare Hathway is a case in point. It's trading at about $70,000 a pop.Just because the per share price is SOOO expensive doesn't mean it can't go much higher. It just means only the big name mutual funds or very, very wealthy investors can get in on the action. GE, if it never did any splits, would suffer the same fate. Many individual investors would no longer invest in it, but the price would continue going up.If that had happened, I could easily see somebody creating a "GE mutual fund" what would allow people to buy fractional shares. The individual investor would still invest, but it would be a little more difficult. The lack of stock splits probably wouldn't hurt their share price.That said, I'm a firm believer that anyone should be able to invest in any company, and eventually you reach a point where you've got to say "enough is enough", split the darned stock! My opinion is at around $1,000. If someone can't come up with at least a thousand or so, they probably shouldn't be investing at all due to commissions and such. Split the stock to keep it under $1,000 share. Maybe even keeping it below $200/share would be advantagous so people with $1,200 could still invest all of their money. Otherwise, they could only buy $1,000 and still be sitting on $200 with nothing to buy.This 3:2 stock split is absurd, though. From today's price of 30.80, it'll bring the stock price down to 20.53. Is that really making a difference for anyone? How many people out there wanting to invest in this company couldn't because they didn't have $31? But lo-and-behold, at $21/share, they can suddenly afford it!No, this stock split is a waste of time and effort and I can't help but wonder about the real reason for such a split....Some folks interpret a stock split as the company management having a lot of confidence in the future growth prospects.I've heard of studies that have shown companies tend to do poorer after a stock split. Perhaps it suggests the company management does not have a lot of confidence in the future growth prospects? Anyhow, if the company continues to grow strongly, they won't need a stock split to get attention. They'll get it with or without a split.-- Ryan
Two reasons I can think of for the stock split.1. Keep the price down. Many investors drop out when theprice goes over forty or so. I think studies have been doneof price sensitivity. Perhaps someone could supply a solid number.2. Increase the float. This split will just take us to8.5 million shares. Look at some of your other stocks. AAONwill still have a small float after the split.
Neither of those are good reasons, though.Keep the price down. Many investors drop out when theprice goes over forty or so.Most money being traded is done by institutions. In AAON's case, 45% of the float is owned by institutions. So institutions aren't making up the majority, but they do make up a very large group. Of those individual investors who are left, only a small fraction would be put off by prices over $40. A very small fraction. If there are such studies, I'd love to hear them, because I've never heard of one. The group of people who'd be put off by a $40 stock price have very little money and virtually no influence (if any) on the stock price.Increase the float. This split will just take us to8.5 million shares.Most people buy a dollar amount--then round off the shares to the nearest convenient number. Institutions don't sit back and think, "I want a round number--100,000 shares sound good!" They sit back and think, "I have $1,000,000 I need to invest somewhere. Where would be the best place? Ah-ha! That AAON looks good. How many shares can I get with that? About 32,258 shares. I'll just get a cool 30,000." Or whatever. Maybe 32,000. Maybe 35,000. Or maybe they'll really get 32,258 shares.And most individuals do something like that too. They'll sit down and think, "I have $1,000 to invest. Where should it go? It'll buy me 32 shares of AAON. Yes, that's what I'll do. I'll buy a lot of 30 shares. That's a good, solid number."And do you know what? Artificially increasing the float means absolutely nothing. The same dollar amount (roughtly) is being traded. It adds no liquidity to the stock. None. Zilch. Nada.Take the example to an extreme. Imagine doing a 100:1 split on the company. That would give it a share price of about 31 cents/share. But look at the float! It'll have grown TEN TIMES! But it won't change a darned thing. People would just buy and sell ten times the amount of shares they otherwise would have traded. It's the dollar amount being traded that increases liquidity, not the number of shares making up the float. Nope, this stock split is a waste of time and effort. No ifs, ands, thens, or buts about it. -- Ryan
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar