Good news! Citigroup‘s (NYSE:C) stock will soon be over $40 per share.
Bad news: It’s happening the wrong way. Citigroup has announced that it’s doing a reverse stock split. That means that for every ten shares you own now, you’ll have just one after. The company will also start paying a dividend of ONE PENNY per share!
There’s an odd belief that quality stocks need to have a higher share price. I think Wall Street thinks it’s a bit gauche when your stock can’t break $5. Citigroup closed on Friday at $4.50. The stock has mostly bounced between $3.50 and $5 for the past 18 months.
I’m always amazed at the attention investors pay to the actual share price — not the value — but the nominal price. I often hear investors say that they don’t like stocks over $50 or $60. Why? It makes no sense.
People automatically think a $12 stock is somehow a better buy. It’s not. The nominal price makes zero difference at all to how it will perform in the future. It’s not like a reverse stock split somehow fools investors. The only thing I could say about the share price is that a very low-priced stock will probably be a lot more volatile.
Two years ago, a certain insurance stock had a 1-for-20 reverse stock split. That raised the nominal share price but that hasn’t magically transformed it into a better performer.