Amazon's (AMZN -0.12%) 20-for-1 stock split is rapidly approaching. Shareholders approved the stock split at the annual shareholders meeting on May 25, which means the much-anticipated split will take place on June 3. All shareholders will receive 19 additional shares for every share of Amazon stock they own.
If stock splits sound confusing, keep reading to see how Amazon's 20-for-1 stock split will impact your portfolio. This overview will give you a rundown on stock splits, because Amazon isn't the only stock splitting this year, and it won't be the last.
An introduction to stock splits
Stock splits are back in style, and are stirring up excitement among investors. For the first time since the late 1990s, Amazon will follow the path of other tech giants and proceed with a stock split on June 3.
If you currently have five shares of Amazon stock in your account, you'll probably have to blink your eyes twice after noticing 100 total shares in your account after the stock split. It's not an error. You were just a participant in the 20-for-1 stock split. There's nothing you'll have to do to receive your extra shares. They will automatically appear in your account after the stock split.
Although it may appear you've won the jackpot, that's not the case. The value of your shares will remain the same.
Let's say your five shares were worth $10,000 before the stock split. If the stock price doesn't change, your shares will still be worth $10,000 after the stock split.
A stock split chops existing shares into smaller pieces. This lowers the price per share and makes the stock more affordable for smaller investors.
One share of Amazon is worth about $2,300. Since Amazon is moving forward with a 20-for-1 stock split, the post-split stock price would be about $115 per share. The price tag of Amazon shares will drop on June 6. This is the same way other stock splits in the market will work.
How many shares of Amazon will you have after the split?
Although stock splits work the same way, you'll need to know the stock split ratio to determine how many shares you'll have in your account after the stock split.
The below numbers use Amazon's 20-for-1 stock-split ratio as an example. The numbers on the left represent the number of shares you have on record as of May 27. The numbers on the right show how many shares of Amazon will be in your account after the stock split.
- 1 share of Amazon stock = 20 shares after stock split
- 2 shares of Amazon stock = 40 shares after the stock split
- 3 shares of Amazon stock = 60 shares after the stock split
- 4 shares of Amazon stock = 80 shares after the stock split
- 5 shares of Amazon stock = 100 shares after the stock split
Fractional shares will also multiply
If you have fractional shares, you won't be left out of the stock split. You'll also wake up to more shares in your account after the stock splits on June 3.
Fractional shares have become popular because they give you access to a stock without breaking the bank. It makes it easier for anyone to own any of their favorite companies in the world with only $100. Instead of paying a four-figure price per share for Amazon or any other high-priced stock, you can choose how much you invest in exchange for fractional shares.
Here's how many shares you'll have after the stock split if you own fractional shares of Amazon:
- 1/2 share of Amazon stock = 10 shares after stock split
- 1/4 share of Amazon stock = 5 shares after stock split
- 1/5 share of Amazon stock = 4 shares after stock split
- 1/10 share of Amazon stock = 2 shares after stock split
- 1/20 share of Amazon stock = Congrats! You have one whole share of Amazon stock
Stock splits don't reveal how successful a company will be
Although stock splits can increase your share count, it doesn't always translate into guaranteed profits. Before you invest in Amazon or any other stock, it's important to do your research. Choose stocks that align with your goals and risk tolerance and you'll be better off in the long run.