Buy on the split?

Q:

I’m thinking that Facebook parent company Meta Platforms, trading near $250 per share, might split its stock soon. Would that be a good time to buy? — H.M., Laramie, Wyo.

A:

Not necessarily. A stock split will lower the share price, but it won’t change the value of your holding. Let’s imagine you own 50 shares of Meta Platforms, it’s trading at $250 per share, and it executes a 10-for-1 stock split. Before the split, your 50 shares would be worth $12,500. Post-split, you’d suddenly own 10 times as many shares — 500! But the share price would have been adjusted downward proportionately at the split, from $250 to $25. So you’d then own 500 shares worth around $25 each, for a total value of ... $12,500.

In short: Don’t wait for stock splits or get too excited by them. Companies may execute them to make their shares more affordable and attractive to investors, but if you had $500 to invest, you could buy just one share of a $500 stock instead of 20 shares of a $25 one. The stock price alone doesn’t reflect whether or not it’s a bargain.

Plenty of companies rarely or never split their stocks. Meta Platforms is one of those companies which, to date, never has.

Q:

What’s a company’s payout ratio? — A.R.,

St. Augustine, Fla.

A:

It’s the percentage of its earnings that are paid out in dividends. Citigroup, for example, pays out $2.04 per share annually ($0.51 per quarter), and its trailing 12 months’ worth of earnings total $7.52, per Yahoo Finance. Divide $2.04 by $7.52, and you’ll arrive at a payout ratio of about 0.27, showing that around 27 percent of Citigroup’s earnings go to its dividend. Payout ratios near or above 100 percent are problematic because they’re not sustainable.