Over the past few weeks Tesla and Apple stock splits have been announced. Here’s what that means.
What is a stock split?
A stock split is where a company divides its common stock by a certain amount. For example, a three way stock split would mean one share would become three.
Stock splits increases the shares outstanding for that company while not changing the overall assets or company value. It can be used by companies to widen the potential buyer pool by lowering the individual stock value.
What is the Apple stock split?
This is the fifth stock split in Apple’s history. The first was in 1987, followed by two more in 2000 and 2005. All of these were a 2-for-1 split. The most recent was in 2014 where a 7-to-1 stock split was announced when Apple stock prices reached $US700.
This time around Apple is doing a 4-for-1 split, meaning that shareholders will own four Apple stock for every one they currently own.
At the time of writing Apple stock is sitting at $US506.09 per share, approximately $698.45 Australian.
What about Tesla?
This is the first stock split Tesla has ever announced. It’s offering a 5-for-1 split, meaning shareholders will own five Tesla stock for every one they currently own.
Since Tesla made the announcement a few weeks back Tesla stock has jumped up massively. At the time of writing Tesla stock is sitting at $US2,153.17 per share, which is around $2,971.43.
What does this mean for each share?
What’s most important to note here is that the splits don’t quadruple or quintuple the value of an individual’s Apple or Tesla holdings.
Instead, one share gets broken down into multiple shares. This doesn’t change the value of the holdings, it just means it stretched across more individual shares.
Lowering the value of stock basically means that more people can afford it and it can therefore drive up demand for that stock.
“If you paid $400 per share for your Apple stock, your tax basis will be $100 per share after the split,” investing website, Motley Fool, explains.
“If you then sell it for $125 per share, you’ll have a $25 per share gain — not bad based on the $400 you paid for pre-split shares.”
This is a big deal, particularly when it comes to Tesla. It’s share price will go from around the $3,000 mark to $740. This is still pricey but not quite as heinous.
When are the Tesla and Apple stock splits happening?
The Tesla and Apple stock splits are taking place on the same day — August 28, which will be August 29 here in Australia. The shares will then begin trading on the stock market on August 31, which will be September 1 in Australia.