What Is a 3-for-2 Stock Split?

By Motley Fool StaffFool.com

A stock split occurs when a company increases its share count by issuing new shares to existing shareholders.

After a stock split, you'll own more shares, but the total value of your holding shouldn't change by a meaningful amount. Stock splits don't affect the intrinsic value of a stock or of your holdings.

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A company might want to split to make it easier for investors to buy and sell its stock by increasing liquidity, or perhaps for aesthetic and psychological reasons (some investors may be turned off by a high stock price, even though it has nothing to do with valuation.)

For instance, in a 2-for-1 stock split, a company "splits" its shares in half: Each shareholder gets twice as many shares, each of which shares is worth half as much as before.

So what is a 3-for-2 stock split?3-for-2 splits are less common as other split ratios like 2-for-1, but they're not especially rare, either. After a 3-for-2 stock split, you'll have three shares for every two shares you used to own. The company will increase its share count by half, and its share price should correspondingly decline by approximately one-third. The market value of your holding therefore remains more-or-less the same.

For example, in March 2015, pest-termite-and-rodent-killer Rollinsmade a 3-for-2 stock split. Its common stock share count rose by one-half from 146 million shares to 219 million shares, and its stock price per share fell by about one-third.

If you owned owned 100 shares at $33.15 per share on March 10, 2015, you would receive 50 new shares. Since Rollins closed at $22.44 the following day, your March 10 $3,315 holding (100 x $33.15) would trade on March 11 for roughly the same amount ($3,321 = 150 x $22.44).

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