In a filing to the Securities and Exchange Commission (SEC), Tesla [TSLA] revealed plans for an impending stock split. The company will ask shareholders to approve an increase in the number of shares outstanding, paving the way for its second stock split in two years.
Tesla is currently up over 5% in premarket trading as a result. Let’s get into some of the details.
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Has Tesla announced a stock split?
Short answer, not exactly. As a public company, Tesla first needs the permission of its existing shareholders to follow through with any kind of stock split. The SEC filing from today shows that Tesla plans to ask its shareholders to authorise an increase in the number of shares it has outstanding to facilitate the split.
In order for Tesla to enact a 2-for-1 split, it would need to increase the number of shares outstanding by over a billion. Any larger split, such as another 5-for-1 as we saw the company do in August 2020, would require a much larger increase in that number.
What does this mean for Tesla investors?
Fundamentally, nothing. Tesla is effectively splitting itself into smaller segments. For every share you own, you’ll receive more depending on the weighting of the stock split. A 2-for-1 split would see you gain one extra share for every one you already own. A 20-for-1 split, which Amazon announced earlier this month, would see you own 20 shares for every one you already possessed.
Stock splits do have some other effects, however. Typically, they indicate a bullish sentiment from the company and will often be accompanied by a short-term boost. Tesla’s stock soared by a whopping 78% between its previous stock split announcement last year and the day of the actual split. It must be noted though, that the firm also experienced a subsequent 33% drop the following week.
With Tesla stock currently down over 15% year-to-date, this could prove to be the catalyst for renewed growth amid a relatively uncertain market. Interestingly, the reason behind this proposed split is to allow Tesla to pay a dividend to its shareholders.
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