Wednesday, December 9, 2009

NZX Share Split good news for profit takers

The announcement of a 3:1 share split and improved dividend payout by the the New Zealand Stock Exchange Ltd [NZX.NZ] shows that directors of the company are confident that future performance of the company is going to exceed market expectations.

The share split is an attempt by the NZX to get more mum and dad investors on their share register as the bulk of shareholders are currently brokers -who used to privately own the company - and those on the "inside" of the stockmarket industry.

This is the second time the stock has split since its 2003 listing.

The theory of stock splits is that by making shares "cheaper" it increases liquidity and enables more people to own shares.

In practice though, splitting shares has no material long term effect on the company doing it - and nor should it - and rarely does much for liquidity.

The main effect a stock split has is to allow short term investors to make good quick profits based on the typical rise of the pre-split share price and then dump the shares before the stock splits.

Post split, shares sometimes rally as well so there is opportunity there to turn a fast buck.

This kind of "sleight of hand" with shares is rarely sustainable for any long term share price increase and it is back to basics for concrete results to get a real indication of a market value for a company.

If you are keen to make some fast moola there should be more to be made before the record date for the share split on Monday 21 December 2009 . The share split will happen after market close on Monday 21 December and be effective on, and from, market open on 22 December 2009.

NZX shares have rallied around 60c on the news since it came out on Monday 7 December so if you take the plunge please be aware of the risk involved.

Good luck!

Related Share Investor Reading

Understanding Stock Splits
What is a Reverse Stock Split?
Investor Education

Related Amazon Reading

Handbook of the Stock Market Hos Glossary of Terms (Admission Test Series)
Handbook of the Stock Market Hos Glossary of Terms (Admission Test Series) by Jack Rudman
Buy new: $17.95 / Used from: $24.35
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c Share Investor 2009

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