Stocks: Splits

Would you rather have six of one, or a half dozen of the other? The same thing, right? But in the investing world, stock splits work a little differently.

When a company's stock price gets very high, some investors may shy away from purchasing it. In an effort to lure investors with a lower price tag, companies often split their stock in two or more equal parts. For example, if XYZ Co.'s stock climbs to $120, the company may announce a 3-for-1 stock split, meaning shareholders would get three $40 shares for every $120 share they hold. The underlying value remains the same.

Since the bursting of the tech stock bubble many companies have chosen to do reverse stock splits -- splitting a stock 1-to-5, for example -- to raise the stock price to a level that might be more enticing to institutional investors; the most prominent recent example being JDS Uniphase. ...