Dilution

Dilution occurs when a company issues new shares, reducing the ownership percentage of existing shareholders. This means each shareholder’s stake in the company becomes smaller, and the value of their individual shares may decrease. Dilution can also happen when employees exercise stock options or when convertible securities like bonds are turned into shares. While dilution can reduce a shareholder’s ownership, it can also be positive if the new shares raise capital for growth. However, investors must consider how dilution affects their overall investment in the company.

Example

If a company issues 1,000 new shares and a shareholder previously owned 100 shares, their percentage ownership will decrease.