Tesla will file for a 3-1 stock split in August, but what does this mean for investors? Has Tesla done this before? Will its value rise? Read on to find out.
Tesla will seek approval at its annual meeting for a three-for-1 stock split. According to the company, it wants to split its shares to make it easier to manage stock benefits and maximize shareholder value. The company stated that retail investors had expressed an interest in investing in the stock and that a division would make it more accessible to them.
Splitting stock shares does not affect the intrinsic value of the shares, as it does not alter the company’s underlying ownership. Many companies, including Tesla, argue that they make ownership attractive to small investors. However, some investment firms permit partial ownership, which overcomes some of the drawbacks associated with high stock prices.
Inflationary pressures, supply chain problems, and instability caused in part by the conflict in Ukraine have put pressure on shares of the electric carmaker. Tech-heavy Nasdaq stock is down 25% year to date.
At its August annual meeting, Tesla will request that its investors approve the split. In March, the company announced its plans for the split. However, it did not provide any information about the timing or the ratio until this filing.
Stock splits are not as common as they once were, but Tesla still has some companies in 2022: Amazon, as well as Alphabet, announced splits this year.
Tesla shareholders will receive three shares of company stock per share if the measure is approved. Like any stock split, investors’ stakes will not change, but individual shares will be less expensive.
What does the Tesla stock splitting mean for investors?
Tesla stated in its proxy statement that it expected the split to “reset” the common stock’s price, which has risen more than 43% since its last stock split in August 2020 (at a ratio of 5:1).The company stated that this will allow employees who are eligible for stock benefits to have more control over their equity payments.
Tesla stated that the stock split would make it more accessible for retail investors. A 3-for-1 split of Tesla shares would bring the share price down to $217 if Tesla shares are stable at $650.
Tesla stock split history
In Tesla’s stock split history, Tesla (TSLA) has one split. The August 31, 2020 split of TSLA was completed. The split was a 5-for-1 split. This means that for every share of TSLA pre-split, the shareholder now owns 5 shares. A 1000-share position before the split was converted to a 5000-share position after the split.
Why would Tesla want to split its stock so quickly?
Elon Musk is the only one who knows, but it could give the stock a boost. TSLA’s stock price has more than doubled since its August 2020 stock split, but the stock has fallen over 4% in the past year. Although stock splits do not automatically make shares more valuable, they can increase the popularity of stock for retail investors because it is less expensive, which could lead to shares going higher.
What’s a stock split?
This is when a company decides that more shares are available by diluting existing shares by a specific factor such as 2-to-1. For example, a 2-to-1 split will result in every shareholder owning twice as many shares but each share being worth half of what it was before.
A company’s shares are split when the company’s market capitalization is stable before and after the split. This means that the shareholder has more shares but each share is valued at a lower per-share price. A lower-priced stock can often attract more buyers. The total market capitalization will rise if the share price appreciates due to increased demand. However, this is not always the case. It all depends on the fundamentals of the business.
It can be very exciting for investors to hear that a stock is being split. A share price that’s too high is a problem and is often faced by growing and successful companies. Although a stock split does not make your investment more valuable, it can attract additional investors by allowing you to trade liquidity at a lower price. Sometimes, however, investors feel confused when they see the impact of a stock split on outstanding market orders, distribution payouts, or capital gain taxes.
Stock splits are a popular way to draw investors’ attention. Many companies, such as Tesla use this tactic in order to create buzz and attract more investors to their shares. Stock splits are routinely performed by some companies. This allows investors to keep accumulating large amounts of stock.
If the company pays stock dividends then the dividend amount will also be reduced, so there’s not really an inherent advantage to buying prior to or after the split.
When deciding which side to trade on, there are other factors to consider. If the share prices of a company have been skyrocketing lately, but you still want to own a piece, it might be worth waiting until after the split.
Splits can also be considered positive if you are able to buy before the split. Splits could lead to more investors wanting a piece of the pie.
Tesla Stock Split Dividends
Investors often wonder if their new shares will be eligible for dividends that were previously declared. This is usually not true because companies that split their stock don’t increase total dividend payments. Dividend payouts are only for shares that were held at the record date of the dividend. Investors should not buy the stock after the dividend record date to receive the dividend.
Dividends paid after a stock split are generally reduced in proportion to the number of shares outstanding. Total dividend payments will not be affected. The dividend payout rate of a company indicates the net income or earnings that was paid to shareholders as dividends.
To avoid confusion, most companies will not announce a stock split until the date of record.
Final Thoughts
Stock splits are not necessarily a better buy for investors than before the split. This is especially important for new investors. Although the stock may be cheaper after a split, the company’s share ownership is still lower than it was before the split. Apple and Tesla have been the most recent stock splits to make headlines.
