Sample Essay

Stock splits have the same nature as stock dividends with one exception. In a stock split the company splits its current shares into two when it feels that smaller investors cannot afford or are not willing to pay the price for a single share. In the process of a stock split a single share is divided into two shares and the price of the share is halved. Suppose the price of a single share of a company is $10 and it decides for a stock split it would now have two shares outstanding with a value of $5 each.

Stock splits are not desirable by shareholders as they play the same role as stock dividends and do not provide a substantial gain to the existing shareholders of the company.

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