RAI surprise
Like many small time investors, I keep a stock ticker on my desktop sidebar. Today, I happened to look up to see that one of my investments, RAI (Reynolds American Inc.), price had dropped significantly from where it had been. Obviously, I began looking into the matter. I don’t plan on selling anytime soon, but a major drop is always a curiosity.
Turns out I was in for even more of a surprise than I thought. The stock split! It’s only a 2-for-1 split, but that means I have double the shares that I had before. Add to that a dividend increase and it makes for some very happy news.
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my new self said,
Wrote on August 17, 2006 @ 4:25 pm
I’m not so sure it was that good. Doesn’t it just mean that your shares are now more diluted?
thatedeguy said,
Wrote on August 17, 2006 @ 4:33 pm
Actually, no. If they had issued as many shares as they already had, it would have diluted my shares. A stock split gives 2 shares for every one share to each owner of record. Basically, I own the same % as I did before, it’s just in twice as many shares.
In the long term, as the dividends continue to increase, I get more and more from it.
It’s actually quite good for the long term.
One of the side effects of it for the short term is that the stock looks better to the untrained eye. Even though it is essentially the exact same , with the exact same numbers except for twice as many stocks, it has a price tag of half what it was. Tell me, if Google dropped by $150 would you buy? I would certainly think about it.