Stock Splits Headed for Record

By Marino, Vivian | THE JOURNAL RECORD, March 12, 1998 | Go to article overview

Stock Splits Headed for Record


Marino, Vivian, THE JOURNAL RECORD


NEW YORK -- If you owned 100 shares of Microsoft on Feb. 6, guess what? You now have 200!

Rite Aid, Safeway and Westpoint Stevens stockholders also have twice as many shares, and those owning America Online, Lucent Technologies and Abbott Laboratories will also see their holdings multiply in weeks ahead.

A bull market gone haywire? Hardly. What's been happening since the beginning of last year is an explosion in stock splits. That's when a company decides to lower its stock price by increasing the amount of outstanding shares. As of early March, more than 125 companies listed on the major stock exchanges announced they were splitting their stock, according to Standard & Poor's. A record 235 companies listed on the New York Stock Exchange split in 1997, up 42 percent from the 166 splits the previous year and beyond the prior record 225 splits in 1983, it said. Most stock analysts believe 1998 will become another record- breaker. "With the (stock) market reaching new highs on a regular basis, we expect many more companies to split their shares," Standard & Poor's said in its weekly investor newsletter, The Outlook. The Dow Jones industrial average has soared more than 600 points, or around 8 percent, since the start of the year. Splits make a stock more accessible to a larger number of investors in dollar terms, particularly smaller investors, who might have been scared off by the high price of a stock. The proportionate ownership of a company doesn't change, however, no matter how you slice it. One hundred shares of a company with a pre-split price of $60 is worth $6,000. A 2-for-1 split turns them into 200 shares worth $30 apiece, or $6,000; a 4-for-1 split into 400 shares worth $15 apiece, or $6,000; a 5-for-4 split, 125 shares at $15 each, and so on... For the more visually bent: It's like slicing a pepperoni pizza into 16 pieces instead of eight; you get just as filled up on two of the smaller slices as you would one of the previous larger ones. "It's a zero-sum game," said Jay Dunnarama, a vice president for First Albany. Some companies split many times -- Microsoft has split its common stock seven times since going public on March 13, 1986. Others never do -- Berkshire Hathaway, a holding company run by Warren Buffet, one of the nation's richest men, sells at more than $50,000 for its Class A stock. Dunnarama and other stock analysts say splits are psychologically important to shareholders, not to mention the market in general, because they indicate recent earnings performance has been good, even great. …

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