Newspaper article THE JOURNAL RECORD

A Bumper Crop of Stock Splits

Newspaper article THE JOURNAL RECORD

A Bumper Crop of Stock Splits

Article excerpt

NEW YORK -- Take one look at the recent barrage of stock-split announcements from corporate America, and you know there's a bull market raging on Wall Street.

In one three-day stretch last week, four of the business world's biggest names -- Microsoft, IBM, Xerox and McDonald's -- announced plans for two-for-one splits, and two star players in the Internet game, America Online and eBay, also said they would split two for one.

This has been going on for some time now. As tallied by Standard & Poor's, the number of stock splits of three-for-two or greater by New York Stock Exchange companies set a record of 235 in 1997. Last year, even with the big selloff that hit the stock market between July and October, the total came to 224. And as of midweek last week, the January 1999 tally had already reached 35. Splits can play a big part in the excitement of a flourishing market. But they can also confuse and mislead anyone who doesn't have a clear idea of what splits do, and do not, represent. The first point to understand is that a split creates nothing in the way of new value or wealth. It merely cuts an existing pie into a greater number of pieces. Suppose you own 100 shares of Hypothetical Industries, trading at around $80 a share, when Hypothetical declares a two-for-one split. You will receive another 100 shares, bringing your total to 200, but the stock will start trading at around $40 after the split. So your investment will still have the same total value, around $8,000. What's the big deal, then? A quick Internet search turns up a dozen names of companies that study, track and predict stock splits, many of them offering to notify investors by pager or e-mail every time a new split is announced. Splits, by long-standing tradition, are considered signals of confidence from the companies that declare them, and significant psychological boosts for the stocks involved. …

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