Tesla intends to split its stock in order to pay a stock dividend to investors.
According to a filing with the Securities and Exchange Commission, Tesla, Inc. the electric vehicle manufacturer will request at its annual shareholders meeting to split its stock so that it may pay a stock dividend to stockholders. For the second time in two years, the corporation is seeking its shareholders' approval to split its stock.
This split would take the form of a dividend, with stockholders receiving more shares. Shareholders would essentially get a special dividend of extra shares for each share they already possess. The majority of dividends are paid in cash to investors. Stock dividends are significantly more similar to stock splits than cash dividends. The electric vehicle manufacturer did not specify how many shares investors would receive. Its previous split in August 2020 awarded stockholders five shares for every share owned.
A stock dividend is a dividend paid to shareholders in the form of extra business shares rather than cash. Dividends have no effect on a company's worth, but they dilute its share price. In other words, if there is a 6-for-1 split, investors will get a stock dividend of five shares for every share of Tesla they own. This would be a one-time occurrence.
The date of this year's shareholders meeting, at which the proposal will be voted on, has yet to be announced. Therefore, the timing of the Tesla split remains unknown. The shareholders' meeting was conducted on October 7 last year.
Stock splits do not have a significant impact on a company's value. However, by lowering the price at which shareholders must pay to purchase a single share, they may actually raise demand and therefore the price. When Tesla announced its first stock split in August 2020, it was a 5 to 1 deal. At this moment, it's unclear what kind of split would be suggested for shareholders. The annual meeting of Tesla is normally held in June.
Tesla's stock rose 12.6 percent on the day that its last five-for-one split went into effect. Since then, the stock has more than doubled in value. However, the split occurred in the midst of Tesla's record run, which saw the stock rise 743 percent in 2020.
“Given how well the stock has performed since the previous split, "given how well the stock has performed since the previous split,” said Dan Ives, a Wedbush Securities tech analyst.
Tesla is still a small company compared to other well-known automakers. However, Tesla's quick development the firm expects yearly sales to soar by 50% or more and the expectation that the company would profit from an industry-wide move away from internal combustion engines and toward electric vehicles have spurred remarkable market value gains. Tesla's stock has risen 1884 percent through Friday's closing since October 2019, when the company went from a string of quarterly losses to an unexpected profit. Tesla is currently worth more than the total market capitalization of the world's top 13 manufacturers.
Wedbush Securities analyst Dan Ives has approved the fresh split plan. "We regard Tesla's plan to join the likes of Amazon, Google, and Apple in commencing its second stock split in two years as a wise strategic move that will be a positive driver for shares moving ahead," he said.
In theory, a stock split should not cause shares to rise prior to the split because the company's value has not changed. However, there are other hypotheses as to why a stock split could increase its value. For one thing, if the shares were cheaper, more individual investors would be able to purchase and own shares of the stock, broadening the base of ownership.
Another hypothesis is that when a stock divides, such as when Tesla's stock splits, it is more readily added to various indexes such as the S&P 500 or Nasdaq 100, resulting in more shares being acquired by fund managers who model their portfolios on these indexes. Another idea holds that lower share prices enable lower option pricing in the thriving derivatives market, where retail traders and the Wall Street Bets community are active participants.
When stocks split, the markets quickly react, adjusting the stock price so that investors have the same total amount of value despite holding additional shares, each of which is less valuable. However, whether the same holds true for stock dividends is dependent on the market's efficiency. If the market reacts precisely to changes in supply, prices should adjust proportionately, making a stock dividend equivalent to a tiny stock split, with no actual value flowing to investors, unlike a cash dividend. However, if the market reacts differently to a smaller increase in share supply than to a bigger rise in share supply, owners may be better off. It will be interesting to see if these stock dividends genuinely assist investors.
Tesla acknowledged in a tweet earlier Monday that it was seeking authorization from shareholders to split the stock
