Stock Split Question

[zeros]

When there is a 2-1 stock split, does the two shares replace the one he owns and so he owns a total of 2? Or does he get 2 shares for every one owned so he now has 3 shares?

[S T]

Stock splits

2 for 1 stock split. The taxpayer now owns 2 shares however t/p basis in the stock is the same, the per share cost will decrease. If t/p owns 1 share at $100 and the stock has a 2 for 1 split, t/p now owns 2 shares with basis of $50 per share.

http://www.sec.gov/answers/stocksplit.htm

Sandy

[drdino]

Split

Yes to the former. I you own one share of XYZ stock for 100 dollars a share and it splits, you now have 2 shares of XYZ at 50 dollars a share. A reverse split works just the opposite.

[OtisMozzetti]

Stock Splits vs. Stock Dividends

If there is a 2-for-1 stock split, then the investor owns twice as many shares after the split as before the stock split, each share having half as much invested basis as before. Often a 2-for-1 stock split is actually implemented as a 100% stock dividend, one additional share passed out for every share owned as of the record date of the split.

A two-for-one stock dividend, on the other hand, would result in three times as many shares owned after the dividend. For each share previously owned, two additional shares would be passed out. That is the same as a 3-for-1 stock split.

Also, keep in mind that sometimes the "new" shares completely replace the "old" shares; so in that case enough new shares must be passed out to provide shareholders the intended number of shares since the "old" shares will no longer have any value.

[FEDUKE404]

Split vs dividend confusion

If there is a 2-for-1 stock split, then the investor owns twice as many shares after the split as before the stock split, each share having half as much invested basis as before. Often a 2-for-1 stock split is actually implemented as a 100% stock dividend, one additional share passed out for every share owned as of the record date of the split.

A two-for-one stock dividend, on the other hand, would result in three times as many shares owned after the dividend. For each share previously owned, two additional shares would be passed out. That is the same as a 3-for-1 stock split.

The simplest way to view a 2:1 stock split is that you end up with twice as many shares as you previously owned, viz the company sends you an amount of new shares equal to the shares you already owned. You owned 100 shares worth $1 each, you receive 100 NEW shares, and the 200 total shares are now worth 50¢ each. For a 3:1 split scenario, you would receive 200 NEW shares, and the 300 total shares are now worth 33 1/3¢ each.

FWIW: I generally prefer to track the total cost basis (a constant $100 for all three examples above) and then allocate a "per share" number whenever necessary, such as cash in lieu for fractional shares.

The reference to a stock dividend is a bit confusing. I have always seen those expressed as a percent, i.e. a 100% stock dividend is (except for the corporate bookkeepers?) the same as a 2:1 stock split. I don't recall ever seeing anything called a "two for one stock dividend" as that could easily confuse many/most folks, myself included!

FE