Nairobi Securities Exchange. [Photo/SoftKenya]
Have you ever wondered why listed firms opt for a share split? Experts say when the price of a listed stock rises beyond the reach of many, then the share is ripe for a split to make it affordable.
A stock split is a verdict by the business’s panel of executives to upsurge the number of dividends that are unsettled by distributing more shares to present stockholders.
For example, in a 2-for-1 stock split, each stockholder with one stock is given an extra share. So, if a firm had 10 million shares unsettled before the split, it will have 20 million dividends outstanding after a 2-for-1 split.The share split is valuable to those who want to participate inequities in the short-term.
“If a company splits its shares every time it breaches the Sh100 mark, all investors including “small’ ones will be able to invest, which is advantageous when it comes to building a balanced equity portfolio.
Most listed companies at the Nairobi Securities Exchange keep their share prices below Sh100 to maintain a reasonable share price range, which ensures the availability of the stock is not eroded as the company increases in value. Interestingly, 16 out of the 66 listed companies at the NSE have stocks prices above Sh100 per share.
An overview of the stock share prices reveals that the companies have managed to keep the prices high in order to keep off short-term investors. The companies fear to dilute their shareholding by splitting their share as is seen in many companies where the share price falls between Sh5 and Sh99 per share a move which analysts claim is calculated to ensure status quo remains.
The interesting thing about companies that have their stock share about Sh100 is that their shareholders are not many, implying that when dividends are declared, shareholders can take home as much as Sh200 a share. Analysts say when the stock price is high, not many people can afford it and it is, therefore, normally dominant.
Shares that are trading for above Sh500 at the NSE each are usually keeping away prospective buyers from buying the stocks, making it sometimes tough to even afford a handful of shares.This is, however, not shared by all investors in the market.