Stock splits explained: forward splits, reverse splits, examples

A stock split changes how many shares a company has without changing what the company is worth. In a forward split, each share becomes several cheaper shares. In a reverse split, several shares are combined into one more expensive share. Either way, your slice of the company stays exactly the same size.

Splits make headlines because share prices jump or drop by large amounts overnight, and because they are often read as signals about a company's confidence or its troubles. This guide explains the arithmetic, why companies split, the key dates, what happens to dividends, options and fractional shares, and real examples, including NVIDIA's 10-for-1 split in June 2024 and General Electric's 1-for-8 reverse split in 2021.

How a split works

The ratio tells you how many new shares replace how many old ones. "10-for-1" means ten new shares for every one old share. The price adjusts by the inverse of the ratio, so the total value of each holding is unchanged.

The SEC's Investor.gov glossary describes the same idea with a two-for-one split: 100 shares at $100 become 200 shares at $50, and any per-share dividend falls proportionately. Because no new money changes hands and no one's share of the company changes, a split does not dilute existing owners.

Reverse splits

A reverse split consolidates shares. In a 1-for-10 reverse split, every ten shares become one, and the price is multiplied by ten.

Investor.gov notes that very large reverse splits can push small holders out entirely, because holders left with only a fraction of a new share are often cashed out.

Why companies split their stock

Forward splits usually follow a big rise in the share price:

• Accessibility. A lower price per share is easier for employees receiving stock grants and for investors who buy in round lots. Fractional-share trading has reduced, but not eliminated, this reason.
• Options trading. One options contract usually covers 100 shares. At $1,200 a share that's $120,000 of stock per contract, which prices many small investors out.
• Index and signaling effects. A very high price can matter for price-weighted indexes such as the Dow Jones Industrial Average. Boards also tend to split after strong performance, so a split can be read as a sign of confidence, though it changes nothing fundamental.

Reverse splits usually follow a big decline:

• Listing standards. US exchanges require a minimum price. Nasdaq, for example, requires a minimum bid price of $1.00 and starts a compliance process when a stock closes below it for 30 consecutive business days. A reverse split is a common way to get back above the line.
• Perception and eligibility. Some institutional investors and brokers avoid stocks under $5. A higher price can widen the pool of potential buyers.
• Corporate restructuring. Reverse splits sometimes accompany spin-offs or mergers, as with GE's 2021 split ahead of its breakup.

The key dates

A split is announced with several dates, similar to a dividend:

1. Announcement. The board approves the split; reverse splits often need a shareholder vote.
2. Record date. Shareholders on the books that day are entitled to the new shares.
3. Distribution (payable) date. The extra shares are delivered, usually after the close.
4. Ex-date. The first day the stock trades at the split-adjusted price. For forward splits this usually falls the business day after the distribution, and shares sold between the record date and the ex-date carry the right to the new shares with them.

Real examples

NVIDIA, 10-for-1 forward split (2024). NVIDIA announced the split on May 22, 2024, alongside its quarterly results. Shareholders of record at the close on June 6, 2024 received nine additional shares for each share held, distributed after the close on June 7, and trading began on a split-adjusted basis on Monday, June 10, 2024. NVIDIA also raised its quarterly dividend from $0.04 to $0.10 a share before the split, which works out to $0.01 per share after it.

In Finabase's split-adjusted data, NVDA's weekly close for the week of June 3, 2024 shows as $120.89, which is the pre-split close of about $1,209 divided by ten. The chart has no gap at the split because the data provider divided every earlier price by ten. A raw, unadjusted chart would show the price falling 90% in a day, which is why charts and return calculations use adjusted prices.

Other well-known forward splits. Apple split 4-for-1 in August 2020. Amazon split 20-for-1 in June 2022, and Alphabet split 20-for-1 in July 2022. Each followed a long rise in the share price.

General Electric, 1-for-8 reverse split (2021). After years of decline, GE's shares traded in the low teens. GE completed a 1-for-8 reverse split, and its stock began trading on a split-adjusted basis on August 2, 2021. The number of shares outstanding fell from about 8.8 billion to about 1.1 billion, with fractional holdings paid in cash. GE then split into three separate public companies over the following years.

What happens to everything else

Pitfalls and misconceptions

"The stock got cheaper." Only the price per share fell. The company is valued exactly as before. Judge value with market cap and ratios, not the share price.

"A split means the stock will rise." Prices sometimes rise around split announcements, but the split itself adds no earnings or assets. Any move reflects sentiment or the news that came with it.

"A reverse split fixes the problem." It fixes the share price, not the business. Investor.gov warns that investors may still lose money after a reverse split, and that very large reverse-split ratios can appear in schemes involving dormant shell companies.

Reading old charts and data. Unadjusted historical prices, old news articles and old cost-basis records can be off by the split factor. Make sure you're comparing adjusted numbers.

Forward and reverse splits compared

How Finabase helps

Each symbol's Dividends & splits tab, for example NVIDIA's, lists its split history with dates and ratios next to its dividends. Finabase charts, such as NVDA's, are split-adjusted, so long-run performance and indicators aren't distorted by splits. The Dividends and DRIPs: key dates, yield and reinvestment guide covers how per-share dividends adjust, and What is a stock? A complete beginner’s guide to shares explains market capitalization, the number a split never changes.

Frequently asked questions

Do I make money from a stock split?

No. A split changes the number of shares and the price per share in equal and opposite proportions, so the value of your holding is the same immediately after the split.

What happens to my fractional shares in a reverse split?

It depends on the company and your broker. Many companies pay cash for fractions instead of issuing them, while some brokers that support fractional shares let you keep the fraction.

Is a stock split taxable in the US?

A plain forward or reverse split is generally not taxable. Your total cost basis carries over and is spread across the new number of shares, though cash paid for fractional shares can be taxable.

Why do companies do reverse stock splits?

Most often to raise a low share price, for example to meet an exchange's minimum bid price rule, to attract investors who avoid low-priced stocks, or as part of a restructuring.

Summary

A stock split reslices a company into more or fewer shares without changing its size. Forward splits, like NVIDIA's 10-for-1 in June 2024, multiply the share count and cut the price; reverse splits, like GE's 1-for-8 in 2021, do the opposite, usually after a long decline. Your percentage ownership, the value of your holding and the company's market cap are unchanged by the split itself, and adjusted charts erase the jump entirely. Treat a split as a mechanical event and look to the business, not the share price, for value.