Alphabet Stock Just Split – What Does That Mean & How Does It Affect Your Investments?

American shares.
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When Alphabet stock split earlier this month, many investors saw their net worth rise rapidly. The 20-for-1 stock split meant that each share of Alphabet, Google’s parent company, was now worth 20 stocks at 1/20 of the price. However, a stock split makes each individual share more affordable to investors. That usually results in more purchases, causing the stock to rise. In the case of Alphabet, the stock rose 9% in aftermarket trading following the split.

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That means individuals who had one share of Alphabet stock at $2,752.88 now had 20 shares, each worth $137.64. But the 9% jump resulted in a gain of more than $15 for each share, or $300 for 20 shares.  

But what exactly is a stock split?

As the name implies, a stock split occurs when each share of stock is divided into multiple shares. For each share a stockholder possesses, they will receive additional shares. In the past, stock splits occurred frequently when a stock hit $100. Today, they rarely occur — and usually when a stock price is rising rapidly and reaching territory where it would be unaffordable for many investors.

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A four-for-one stock split means that each investor would get three additional shares, each worth one-quarter the price of the original stock. Stock splits can be especially relevant on stocks that pay dividends. In a four-for-one split, for instance, investors who used to receive dividends on one stock would now receive dividends on four stocks.

Stock splits tend not to affect the market capitalization of a company, apart from whatever increase the stock may experience following the split based on more buyers being able to afford shares. S&P 500 stocks tend to gain 5% in the year following a split, with a 2.5% rise occurring immediately, the Wall Street Journal reported.

However, in today’s investment world, where many apps permit investors to purchase fractional shares, splits have lost a lot of their relevance, which is why we don’t see them as often.  

When Stocks Split Unevenly

Sometimes, a company will split a stock because of organizational changes within the company. For instance, last Tuesday AT&T announced that it was spinning off its WarnerMedia division and merging the property with Discovery. As part of the company split, AT&T shareholders received 0.24% of a Warner Bros. Discovery stock for each AT&T stock they owned.

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AT&T also decided to cut its dividend payments from $2.08 per share to $1.08 per share. As a result, instead of seeing AT&T stock rise as a result of the split, AT&T stock dipped 4%.

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What Should Investors Do When a Stock Splits?

Keeping in mind that most stocks rise following a split, it may be a good time to hold onto your investments. However, you may want to evaluate your portfolio for its diversity, to make sure it’s not weighted too heavily toward the split investment. You may also want to speak to your financial advisor about the best money moves to make with your new, growing portfolio.

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About the Author

Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.
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