Royal Bank of Canada T.RY

RE:RE:RE:RE:RE:Stock split?

[Lloyd_Blankfein]

You used a lot of words to avoid answering my very simple yes or no question! ;-)

whodathunkit wrote:

Lloyd_Blankfein wrote:
Would you pay more for a pizza if it's cut into 16 slices rather than only 8?

[/quote]

A stock split was much more useful back in the time when you had to buy board lots of 100 shares.  It would be easier to sell 100 shares at $50 as opposed to 100 shares at $100.  If you bought an odd lot your brokerage fees would be higher.  In todays world where you can buy any number of shares you like it doesn't have quite the effect.  But, to use your analogy, does a pizza joint get more for a full 8 slice pizza or does it get more if it sells each slice individually?  The correct answer is, it gets more by selling each slice individually.  The reason for that is, not everyone can afford a full pizza but most can afford a slice or two.

By dropping down the share price via a split you increase the demand and therefore the price tends to rise to help fill that demand.  Also, it opens up the door for anyone who uses DRIP's as it means they still get the same total dividend but the value of the share is lower so they may now be able to actually DRIP.  Using RY as an example, if you currently have 100 shares, your qtrly dividend won't buy you a share so you can't use the DRIP.  If the stock splits, you have 200 shares at $0.49 each per qtr, so you still are getting $98 but the share price would be say $51 so you would now be able to get one share and have $47 left over.  Eventually the DRIP will get you enough shares that at some point you would start to be getting 2 shares per DRIP etc.  The power of compounding.....

Cheers.