This answer does not take into consideration the value of the dividends. Normally, the price of a share of stock after a two-for-one split will be exactly 50% of the price before the split, because there are twice as many shares outstanding. If the dividend does not drop by exactly 50% when the stock is split two-for-one, then the price of a share would be adjusted to take the change in the dividend into consideration.
Normally, the price of a share of stock after a two-for-one split will be exactly 50% of the price before the split, because there are twice as many shares outstanding. The dividend would be expected to be exactly 50% of what it was before the split. If the dividend is changed to $0.45 per share after the two-for-one split, then the dividend has dropped. In a two-for-one split, if the dividend drops by more than 50%, then the price of a share after the split should be less than 50% of its price before the split, in order to take the change in the dividend into consideration.
After a two-for-one split, the price of a share of stock will normally be exactly 50% of the price before the split, because there are twice as many shares outstanding, if the dividend is unchanged. An unchanged dividend would be one that is exactly 50% of what it was before the split. In a 2-for-1 stock split, if the price drops by more than 50%, a change in the dividend policy might explain the drop. The value of the dividends needs to be considered as well.
The dividend yield before the split is $1 ÷ $80, or 1.25%. If the stock is split 2-for-1, each shareholder will have twice as many shares after the split. Normally, the price of a share of stock after a 2-for-1 split will be exactly 50% of the price before the split, because there are now twice as many shares outstanding, so the dividend per share should be 50% of its previous level in order to keep the payout to each shareholder the same. So if no change is made in the dividend, the dividend will be $.50 per share, and the market price per share will become $40. That maintains the same dividend yield rate for the shareholders: $.50 ÷ $40 = 1.25%. In a two-for-one split, if the dividend drops by less than 50%, then the price of a share after the split should be greater than 50% of its price before the split, because the stockholder is getting a higher dividend yield and would be willing to pay more for the stock. If, instead of paying $.50 per share in dividends, the dividend is changed to $.55 per share, the market price of the stock will adjust so that the same dividend yield rate is maintained. To calculate what the market price of the stock will adjust to, we let X equal the new share price: $.55 ÷ X = .0125. Solving for X, we get X = $44 So, all other things being equal, the market price of the stock should be expected to increase to $44 if the dividend is changed to $.55.
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