Ask Experts Questions for FREE Help !
Ask

Is it better to buy a stock before or after a 2 for 1 split

Asked Jul 17, 2012, 05:51 AM — 1 Answer
KO is set to split 2 for1 with a record date of 7/27 (ex date 7/23?), new shares given on 8/10. If KO is currently trading at an asking price of ~77.44 and has a dividend of .51/sh would it better financially to buy it now or after the split, when it would have an estimated dividend of .26/sh at a price of ~$38-39.

2) Is the stock's price more likely to rise after the split or flounder or fall.

1 Answer
ebaines's Avatar
ebaines Posts: 10,055, Reputation: 5539
Expert
 
#2

Jul 17, 2012, 06:32 AM
On average the return you will get is independent of whether you buy before or after the split - it makes no difference at all. In the old days stock splits were used to lower the price so that average investors could afford to buy the stock in round hundred lot increments, so demand for the stock would rise and the price go up. But these days thanks to discount brokers there is nothing to keep investors from buying "odd lots" of just a few shares, so that argument no longer applies. If keeping the price low was such a good idea than the smart folks at Berkshire Hathaway or Google would jump on it, but instead they just let the price run up. Some argue that stock splits indicate management's confidence in the future of the company, so more people will want to buy - but if you believe that then any added "pop" in the stock price would occur when the split is announced, not after the split itself actually occurs. And of course there is plenty of evidence from the bubble bust of a few years back that management confidence may be worth very little (any former stock owners of Lucent, Nortel, Washington Mutual, Enron, etc know what I'm talking about).

As for dividend timing - as you get closer to the ex-dividend date more of the value of the impending dividend distribution is baked into the price of the stock, so if you buy just prior to ex-dividend you essentially pay more for the stock and quickly get a bit of it back in dividend. This is like swapping part of your cost basis for ordinary income, which from a tax point of view is not a good deal. This is why it is advisable to not but mutual funds immediately prior to their dividend distribution date.
Helpful  (1)

Not your question? Ask your question View similar questions

 
Thread Tools Search this Thread
Search this Thread:

Advanced Search

Add your answer here.

Remove Text Formatting

Undo
Redo
 
Decrease Size
Increase Size
Bold
Italic
Underline
Align Left
Align Center
Align Right
Ordered List
Unordered List
Decrease Indent
Increase Indent
Insert Email Link
Wrap [QUOTE] tags around selected text
Wrap [CODE] tags around selected text
Wrap [HTML] tags around selected text
Wrap [PHP] tags around selected text
Wrap [YOUTUBE] tags around selected text
Notification Type:



Check out some similar questions!

Stock Split and Stock Dividend [ 3 Answers ]

The common stock of Alexander Hamilton Inc. Is currently selling at $120 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. Nine million shares are issued and outstanding. Prepare...

What is the cost price of stock that had stock split, merger and another stock split? [ 0 Answers ]

(1) stock split 7.3839 sh to 14.7669 total cost 475.32 (2) merged total 15.0880 shr @.6611667 ration = 9.9832 total cost 475.32 sh (3) another stock split when it reach 11.0067 to 22.0134shares total cost $593.91 (4) total shares todate 74.595 share. (5) what is the cost basis of the 74.595...

DIVIDENT POLICY: what is stock divident, stock split n stock repurchase? [ 4 Answers ]

DIVIDENT POLICY: What is stock divident, stock split n stock repurchase? Send it with appropriate notes

Stock dividend and Stock split [ 2 Answers ]

What are the diffrences between Stock Dovidend and Stock Split

Stock Split and Stock Dividend Differentiated [ 2 Answers ]

What are the differences between the accounting and securities market between the 2 methods of increasing the number of shares outstanding. The 2 methods are stock splits and stock dividends.


View more Investing questions Search