Message Font: Serif | Sans-Serif
No. of Recommendations: 0
Hi fools.
Chapter II of "Where Are The Custormer's Yachts" presents "a little aptitude test", in order to ascertain whether one should consider a careen in finance.
Among other questions, this one puzzles me: "If a stock which is not paying any dividend is split two for one, how much good does that do to the stockholder? (if you think it does him any real good, come down and join our sales department, but steer clear of out trading department). Thus implying it doesn't do any real good.

I understand that if a stock doesn't pay any dividend and it is split 2-1 the investor's situation remains the same.
investor holds 1 stock of Roman's Empire (fictional company)
price of 1 stock= $10
split 2-1
price of 2 stocks= 2*$5=$10
investor owns 2 stocks of Roman's Empire

what about the case where the stock is paying some dividend?
investor holds 1 sotck of Roman's Empire
price of 1 stock= $10
dividend = $2
div. yield = 20%
split 2-1
price of 2 stocks= 2*$5=$10
dividend = $1
div. yield = 20% (assuming the same dividend yield)
investor owns 2 stocks of Roman's Empire

Is is safe to assume, in a split 2-1, that the dividend yield would be the same as before the split? or companies paying dividend and splitting shares usually decrease the dividend?
This aptitude test has been puzzling me for some time, and maybe I shouldn't own any stock at all!!
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.