RBC Royal Bank Stock Dividend

Written by The Dividend Guy on March 23, 2006

Today was the day that my RBC Royal Bank holding processed their 2 for 1 stock dividend. How this one works is that today, the shares began trading at the adjusted share price (half of the closing price from yesterday). Then, after a week, the payment date arrives at which time my account will be credited with the additional shares (94.278 shares).

As are all stock splits, this is really a zero sum move, as I am left with the same market value post-split as I was per-split. However, with a lower share price it may be more attractive to investors ultimately driving the price up through basic supply and demand.

There is a subset of investors out there that like to trade stocks based on stock splits as often the price of a stock moves up substantially once a split has been announced. There are a couple of reasons for this:

    1. The split announcement draws attention to a company’s success, which results in increased buying and higher share prices.
    2. Companies will often post positive earnings reports and raise dividends at the same time that they announce a split, which often drives the price of the stock up even more.
    3. The reduced price per share after the split attracts many smaller investors.
    4. With so many news and information services reporting splits, the announcements themselves have become a market-moving force.

There are also some “stages” that a stock can go through during periods of a stock split. They are Candidate, Announcement, Post-Announcement, Pre-Split and Post-Split. The basic premise is that the stock has a run up prior to the split and then tends to fall back after the split. If you were a trader, this would be something to watch for and an opportunity to “play” a little. I don’t do much of that at all, but I think it is still good to understand so that when a stock you own that goes through this cycle you can make informed decisions and not react irrationally (i.e. selling during the post-split period).


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1 Comment so far

  1. John May 9, 2006 12:20 pm

    I am interested in investing in some bank stocks, and in particular RBC. There seems to be many to pick from. How do you sort thru these OR is there a common type share that provides some return (besides div)

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