Message Font: Serif | Sans-Serif
No. of Recommendations: 4
This newspaper writer should be shot! Not only does he make all the mistakes that you mentioned, but many others as well. What a great way to get everyone confused.

While it is absolutely true that a stock split is meaningless from the valuation point of view (3 shares at $10 each are the same as 1 share [post split] at $30) there is another factor at play. Many companies like to use the stock split device as a mechanism for signaling the markets what they think the future holds. A stock split is commonly regarded as a good thing, while a reverse split is a bad thing. There are certain regulations and rules in please either in the stock exchanges themselves or amongst mutual funds that drive some of this behavior. For instance, there are rules in some exchanges (if I remember correctly) that no stock will trade there for less than $X. Mutual funds will likely not purchase shares of less than $5 - which explains the Citigroup move discussed in the article, etc.

Even if you want to disregard the "signaling" aspect of this move, the key to dividend investors is what happens to the dividend that gets paid out. Given all the errors in the article, I suggest was all look to the company to tell us if post-split, we'll get three times as much in cash as we used to before?
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.