Do stock splits affect dividends?

Stock splits don’t affect dividends.
Weekly Update - 8.24.20 - 8.28.2020
Weekly Update – 8.24.20 – 8.28.2020

On July 30, Apple announced a 4-for-1 (4:1) split of Apple stock going into effect this weekend. This is not the first time Apple has announced a stock split.

  • June 16, 1987: 2-for-1 (2:1)
  • June 21, 2000: 2-for-1 (2:1)
  • February 28, 2005: 2-for-1 (2:1)
  • June 9, 2014: 7-for-1

What is different this time is that Apple went from a market capitalization of $1.6 trillion on July 30, 2020, to $2.1 trillion as of close on Friday, August 28, 2020.

That’s an increase of 30%.

So this begs the question, is it normal for a stock to increase in price between the announcement of stock split and the date of the actual split?

Yes, it is normal but research suggests that stocks tend to rise by 2.5% to 5% after the announcement of the stock split. That’s not the case with Apple.

So what’s happening?

I think people don’t understand stock splits. They think if they have more of the stock now, they will have an equal amount in value later. This is not true, because the stock split is related to the share and not the share price.

Here’s why.

A stock split is a strategic decision made by the company to turn an expensive stock into a cheaper stock thereby making it more attractive to investors. In other words, it’s a psychological trick. And it did wonders for Apple.

Now let’s talk dividends, my favorite topic.

Do stock splits affect dividends?

I think you know the answer. But I will say it for the record.

No, stock splits have no effect on the dividends.

Let’s say you have 100 shares of Apple. After the split, you will have 400 shares.

Apple pays a dividend per share of $3.28. After the split, you will get $0.82 per share.

100 x $3.28 = $328
400 x $0.82 = $328

You get the same amount of total dividends after the stock split.

Let’s do the numbers.

For the Week

Value: $11,112 | Gain: +$274 | Return: ▲2.54% | Dividends: $0

Last week I invested $250 in the following 9 companies equally:

  • Xylem (XYL)
  • Sysco (SYY)
  • Lockheed Martin (LMT)
  • Eversource Energy (ESS)
  • Owens Corning (OC)
  • Hasbro (HAS)
  • BlackRock (BLK)
  • Air Products & Chemicals (APD)
  • Anthem (ANTM)

All of the above companies are part of ‘10 Dividend Stock Picks Based on The JUST 100 Companies List’ which I shared last week.

Two of my portfolio companies announced dividend increases.

Lowe’s (LOW) announced a dividend increase of 9.1% to $0.60 per share; the previous payout was $0.55.

Intuit (INTU) announced a dividend increase of 11% to $0.59 per share; the previous payout was $0.53.

Portfolio All-time

Value: $11,112 | Gain: +$1,275 | Return: ▲13% | Link to portfolio: M1 Finance | Website | Excel

This all-time portfolio no longer takes into account the gains and dividends I have re-invested. I felt that it was misleading and confused some subscribers.

Projected Dividend Income

Annual: $465 | Monthly: $39

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