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How Will Visa’s 1Q15 Stock Split Impact Investors?

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Four-for-one split

In January 2015, Visa (V) declared a four-for-one split of its Class A common stock. Each Class A common stockholder of record at the close of business on February 13, 2015, received a dividend of three additional shares on March 18, 2015, for every share held as of the record date. On March 19, 2015, trading of Visa shares began on a split-adjusted basis.

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Why Visa opted for a stock split

Visa’s stock price has risen steadily over the years. The stock rose 2.5 times from nearly $100 in January 2012 to over $260 by the end of 2014. It became the most expensive stock on the Dow Jones Industrial Average Index and one of the most expensive on the S&P 500 Index.

Stock splits are most common for companies whose share price increases to a very high level. Companies also take that route if the share price is much higher than the price levels of similar companies in the sector. The fundamental motive of a stock split is to make shares look more affordable to retail investors. The value of the company and its market capitalization does not change in a split.

A stock split might result in an increase in stock price, following the decrease immediately after the split. This is because a stock split generally gives a signal that the company’s share price has been increasing, and might continue to do so. This increases the demand for the stock and its price.

Cash dividend

In April 2015, Visa declared a quarterly cash dividend of $0.12 per share of Class A common stock. The company declared and paid $591 million in dividends during the six months ended March 31, 2015.

The company’s dividend payout is comparable to other companies in the sector, as shown in the above chart.

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