Splits, Stock Dividends & Ex-Dates
Overview
If a company thinks its stock price is too high or too low, it can consider a stock split. There are two types of stock splits: forward and reverse.
| Split type | Effect on shares outstanding | Used when the company believes… |
|---|---|---|
| Forward stock split | Increases the number of shares outstanding | Its stock price is too expensive for the average investor |
| Reverse stock split | Decreases the number of shares outstanding | Its stock price is too low |
Forward stock splits
- Forward stock splits are used when a company believes its stock price is too expensive for the average investor.
- Suppose ABC Company’s stock price has risen to $500 per share, which is relatively high (many stocks trade between $30-$150). ABC Company could lower its price per share through a forward stock split.
- A forward split increases the number of shares you own, while the price per share decreases proportionately. The total value of your position stays the same.
🔑 Stock split formulas (memorize):
- SS factor = first SS number ÷ second SS number
- New shares = old shares × SS factor
- New price = old price ÷ SS factor
Worked example — ABC Company 4:1 forward split
A stockholder owns 100 shares of ABC Company at a current market price of $500 per share. How will a 4:1 forward stock split impact shareholders?
Each stockholder receives four shares for every one share owned.
To find the stock split factor, divide the first number by the second number
SS factor = first SS number / second SS number
SS factor = 4 / 1
SS factor = 4
To find the number of shares adjustment, multiply the original number of shares by the stock split factor
New shares = old shares x SS factor
New shares = 100 x 4
New shares = 400
To find the price per share adjustment, divide the original price per share by the stock split factor
New price = old price / SS factor
New price = $500 / 4
New price = $125
Put it all together and compare before and after to confirm
Before the split:
100 shares @ $500 = $50,000
After the split:
400 shares @ $125 = $50,000
To build confidence with stock split calculations, the chapter references a real-world example: Apple’s 7:1 stock split in 2014.
Practice example — 300 shares, 3:2 forward split
A stockholder owns 300 shares at a current market price of $90 per share. The issuer performs a 3:2 stock split. What adjustment is made to the investor’s position?
What is the stock factor?
SS factor = first SS number / second SS number
SS factor = 3 / 2
SS factor = 1.5
How many shares will the stockholder end up with?
New shares = old shares x SS factor
New shares = 300 x 1.5
New shares = 450
What is the new price per share?
New price = old price / SS factor
New price = $90 / 1.5
New price = $60
Summarize the final result.
Before the split:
300 shares @ $90 = $27,000
After the split:
450 shares @ $60 = $27,000
In each example, the stockholder ends with the same overall value ($27,000 in the last example). What changes is:
- the number of shares owned
- the market price per share
A simple analogy is slicing a pie. If you cut one pie into two slices, you now have two pieces instead of one — but you don’t have more total pie.
Sidenote — Even vs. uneven stock splits
Stock splits can be described as even or uneven based on the split ratio.
| Category | Rule | Examples |
|---|---|---|
| Even stock split | Ends in the number “1” | 2:1 stock split; 4:1 stock split; 7:1 stock split |
| Uneven stock split | Ends in any number other than 1 | 3:2 stock split; 5:4 stock split; 7:2 stock split |
Reverse stock splits
- Reverse stock splits are used when a company believes its stock price is too low (the opposite of a forward split).
- Instead of waiting for market demand to push the price up, a company can use a reverse stock split to increase the price per share immediately.
The same formulas apply — but with a reverse split the SS factor is less than 1, so shares go down and price goes up.
Worked example — 1:5 reverse split
An investor owns 100 shares of stock at a current market price of $10. How will a 1:5 reverse stock split impact the position?
Each stockholder receives one share for every five shares owned.
To find the stock split factor, divide the first number by the second number
SS factor = first SS number / second SS number
SS factor = 1 / 5
SS factor = 0.2
To find the number of shares adjustment, multiply the original number of shares by the stock split factor
New shares = old shares x SS factor
New shares = 100 x 0.2
New shares = 20
To find the price per share adjustment, divide the original price per share by the stock split factor
New price = old price / SS factor
New price = $10 / 0.2
New price = $50
Put it all together and compare before and after to confirm
Before the split:
100 shares @ $10 = $1,000
After the split:
20 shares @ $50 = $1,000
Before working through an example on your own, the chapter references a real-world example: Citigroup’s reverse stock split in 2011.
Practice example — 400 shares, 4:5 reverse split
A stockholder owns 400 shares at a current market price of $20 per share. The issuer performs a 4:5 reverse stock split. What will the investor’s stock position become?
What is the stock factor?
SS factor = first SS number / second SS number
SS factor = 4 / 5
SS factor = 0.8
How many shares will the stockholder end up with?
New shares = old shares x SS factor
New shares = 400 x 0.8
New shares = 320
What is the new price per share?
New price = old price / SS factor
New price = $20 / 0.8
New price = $25
Summarize the final result.
Before the split:
400 shares @ $20 = $8,000
After the split:
320 shares @ $25 = $8,000
As in the forward split examples, the stockholder ends with the same overall value ($8,000 in the last example) after the split.
Proportionate ownership and approval
- Stock splits (forward and reverse) affect all stockholders, so proportionate ownership doesn’t change. If an investor owns 25% of the outstanding shares before a stock split, they’ll still own 25% after the split.
- The pie analogy works here too. If you and three friends each own 25% of a pie, slicing your piece into smaller pieces doesn’t change your ownership of the whole pie — you still own 25%.
To summarize, stock splits don’t change overall investment value. They do change:
-
the price per share
-
the number of shares outstanding
-
Although stock splits are relatively insignificant in the long run, they require approval from stockholders.
-
Stock splits (forward and reverse) affect a common stock’s par value. While par value on common stock is a relatively unimportant accounting measure, actions impacting par value generally require shareholder approval.
Stock dividends
- Stock dividends are another way to receive additional shares. Like stock splits, stock dividends are a reshuffling of numbers that can influence the stock price.
- If a company pays a 25% stock dividend, each investor ends up with 25% more shares, and each share falls proportionately in price. The overall value of the position stays the same.
🔑 Stock dividend formulas (memorize):
- SD factor = SD (decimal form) + 1
- New shares = old shares × SD factor
- New price = old price ÷ SD factor
Worked example — 25% stock dividend
An investor owns 100 shares of stock at $20/share. The investor receives a 25% stock dividend. What changes?
To find the stock dividend factor, add the stock dividend percent (in decimal form) to 1
SD factor = SD (decimal form) + 1
SD factor = 0.25 + 1
SD factor = 1.25
To find the number of shares adjustment, multiply the original number of shares by the stock dividend factor
New shares = old shares x SD factor
New shares = 100 x 1.25
New shares = 125
To find the price per share adjustment, divide the original price per share by the stock dividend factor
New price = old price / SD factor
New price = $20 / 1.25
New price = $16
Put it all together and compare before and after to confirm
Before the split:
100 shares @ $20 = $2,000
After the split:
125 shares @ $16 = $2,000
As you can see, the investor ends with the same overall value ($2,000). Comparing “before” and “after” is a good way to confirm your calculations.
Practice example — JPM, 15% stock dividend
An investor owns 300 shares of JPM stock @ $115. They receive a 15% stock dividend. What changes?
Answer = 345 shares @ $100
Step 1: stock dividend factor
SD factor = SD (decimal form) + 1
SD factor = 0.15 + 1
SD factor = 1.15
Step 2: shares adjustment
New shares = old shares x SD factor
New shares = 300 x 1.15
New shares = 345
Step 3: price adjustment
New price = old price / SD factor
New price = $115 / 1.15
New price = $100
Step 4: confirm the same overall value
Before the split:
300 shares @ $115 = $34,500
After the split:
345 shares @ $100 = $34,500
Stock splits vs. stock dividends
In conclusion, stock splits and stock dividends change the number of outstanding shares but don’t cause shareholders to gain or lose overall value. Both can move the price per share up or down, but there are differences.
⚠️ 🔑 The most important difference to remember is voting:
| Corporate action | Shareholder approval required? | Notes |
|---|---|---|
| Stock split (forward or reverse) | Yes — requires stockholder approval | Affects par value, and actions impacting par value generally require shareholder approval |
| Stock dividend | No | Similar to cash dividends; with Board of Directors approval, a stock dividend can occur whether stockholders want it or not |
Ex-dividend date
- The ex-dividend date (ex-date) is the first day a stock trades without the right to receive a declared dividend and serves as the key cutoff for eligibility.
- Under the current T+1 settlement cycle, the ex-date is effectively the same as the record date, meaning investors must purchase the stock before the ex-date to receive the dividend; if they buy on or after the ex-date, the seller receives the dividend.
- This occurs within the broader dividend timeline, which includes the declaration date when the dividend is announced and the payment date when it is distributed.
- On the ex-date, the stock’s market price typically drops by approximately the amount of the dividend, and buy limit orders and sell stop orders are reduced by the amount of the dividend.
Dividend timeline: declaration date → ex-dividend date (effectively same as record date under T+1) → payment date.
Buy before the ex-date to get the dividend. Buy on or after the ex-date and the seller keeps the dividend.
Orders reduced on the ex-date: buy limit and sell stop orders only.
Key points
Forward stock splits result in:
- More shares outstanding
- Lower price per share
- Same overall value
Reverse stock splits result in:
- Fewer shares outstanding
- Higher price per share
- Same overall value
Stock dividend consequences
- More shares outstanding
- Lower price per share
- Same overall value
Stockholder approval (voting)
- Stock splits require approval
- Stock dividends do not require approval
Ex-dividend date (ex-date)
- Buyer before ex-date receives dividend
- Buyer on/after ex-date does NOT receive dividend (seller does)
- Stock price typically drops by dividend amount
- Buy limit orders and sell stop orders are reduced by dividend amount
Sources
Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | Stock splits — share count and price mechanics | SEC |
| 2 | Topic 404 — dividends, qualified vs ordinary | IRS |
| 3 | Stocks — common vs preferred, dividends, voting | SEC / Investor.gov |
| 4 | Achievable Series 65 — chapter 1.1.3 | Achievable (course text) |