What it is
Share dilution happens when a company issues additional shares of its stock, increasing the total number of outstanding shares. This action reduces the proportional ownership stake of existing shareholders because their percentage of the company is now spread across a larger pool of shares. For instance, if you own 100 shares of a company with 1,000 outstanding shares (10%), and the company issues another 1,000 shares, your 100 shares now represent only 5% of the company.
Companies often dilute shares to raise capital for growth, acquisitions, or to pay down debt, or through stock-based compensation plans for employees. While raising capital can be beneficial, dilution typically reduces earnings per share (EPS) because the same net income is divided among more shares, potentially making the stock less attractive to investors. A high rate of share dilution can be a red flag, as it consistently diminishes the value of existing holdings.
Why it matters
Share dilution reduces your ownership percentage and can decrease earnings per share, potentially impacting your investment's value. Monitor a company's share count for significant changes.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice