Antidilutive Effect

In investment, the term antidilutive effect denotes the result of an action which increases a company’s earnings per share (EPS) ratio. This effect is often accomplished by a share buy back.

When a company issues new shares and sells them to investors through public offerings after it has made its initial public offering, the number of shares in circulation increases. The increase in supply can drive down demand for shares, leading to a decline in the values of individual shares. This is known as stock dilution. The value of the company’s full stock has not changed, but the market value of each share has because there are more shares to go around. Because shareholders generally expect companies to pay out dividends, a higher number of shares may mean higher cash outflows. An increase in shares may also lead to a decrease in the dividends paid out on each share because profit distributions must be divided between more shares.

Using antidilutive measures – primarily stock buy backs – companies can encourage demand for their shares by reducing the supply of available shares. These measures may also enable them to pay out higher dividends per share, making their shares more attractive to shareholders and encouraging shareholders to hold their shares. Companies may also reduce outflows of capital because less shares in circulation means less dividends to distribute. Reducing the number of shares in circulation also reduces the chance of too many shares falling into the hands of a competitor, which could result in a hostile takeover.

More on this topic:
Swiss stock broker comparison

Special offers for Moneyland users

Moneyland Special Offers

Swiss Bank

Bank WIR Bankpaket Top

  • Free account & card

  • No exchange fees for foreign payments (interbank exchange rates)

  • 24 ATM withdrawals worldwide per year free of charge

Swiss Broker

Saxo Bank Special Offer

  • Special offer: Reimbursement of brokerage fees up to CHF 200 for 90 days

  • Licensed Swiss bank (FINMA)

  • Free expert research and trading signals

Swiss Trading Platform

Cornèrtrader Special Offer

  • Special offer: particularly favorable conditions for Moneyland users

  • No custody account fees for shares

  • Swiss online bank with FINMA license

Swiss digital bank

Alpian

  • CHF 100 welcome bonus

  • Favorable foreign exchange rates

  • Multi-currency account with Visa card (CHF, EUR, USD, GBP) 

Funds

Allianz Fund Investments

  • Special offer with CHF 200 welcome bonus

  • No prior knowledge necessary: Advice from experts

  • One of the 10 largest asset managers worldwide

Special offers for Moneyland users

Moneyland Special Offers

Swiss Bank

Bank WIR Bankpaket Top

  • Free account & card

  • No exchange fees for foreign payments (interbank exchange rates)

  • 24 ATM withdrawals worldwide per year free of charge

Swiss Broker

Saxo Bank Special Offer

  • Special offer: Reimbursement of brokerage fees up to CHF 200 for 90 days

  • Licensed Swiss bank (FINMA)

  • Free expert research and trading signals

Swiss Trading Platform

Cornèrtrader Special Offer

  • Special offer: particularly favorable conditions for Moneyland users

  • No custody account fees for shares

  • Swiss online bank with FINMA license

Swiss digital bank

Alpian

  • CHF 100 welcome bonus

  • Favorable foreign exchange rates

  • Multi-currency account with Visa card (CHF, EUR, USD, GBP) 

Funds

Allianz Fund Investments

  • Special offer with CHF 200 welcome bonus

  • No prior knowledge necessary: Advice from experts

  • One of the 10 largest asset managers worldwide

Deal of the Day
×
Swiss Bank

Bank WIR Bankpaket Top

Free account & card

Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.