Long out of favor, stock splits are making a comeback.
First up is Walmart, which announced a 3-for-1 stock split on January 30, with additional shares distributed on February 23.
Since then, it has flourished. On Thursday, Williams-Sonoma announced a 2-for-1 split, and on Wednesday, Broadcom announced a 10-for-1 split.
Notable Stock Splits in 2024
(when distributed)
Walmart 3-1 2/23/24
cooper co. 4-1 2/16/24
Texas Pacific Land Company 3-1 24/3/27
old dominion freight line 2-1 March 27, 24
Nvidia 10-1 6/7/24
Amphenol 2-1 6/11/24
Chipotle Mexican BBQ 50-1 6/25/24
Broadcom 10-1 7/12/24
williams-sonoma 2-1 7/8/24
ribbon 4-1 9/11/24
Sony Group 5-1 10/8/24
Pan-forest research 10-1 10/3/24
Why are stock splits making a comeback?
Stock splits are less common today than they were 20 or 30 years ago. Stock splits were common during the technology and dot-com bubbles of the late 1990s. David Kostin, chief U.S. equity strategist at Goldman Sachs, noted that in the late 1990s, about 15% of Russell 1,000 companies were doing stock splits annually, but that proved to be a Anomalies.
By the mid-2000s, about 5% of Russell 1000 members were splitting their shares each year, and after the financial crisis of 2008-2009, stock splits all but ceased.
Importantly, fragmentation did not increase after the market began to recover in 2010.
The likely reason is that the institutional basis for equity has dominated the market. Institutional investors invest in dollar value rather than stocks. For example, they typically buy $10 million of stock and don’t care what the price is.
But recently, there have been signs of a subtle shift. Part of the reason may be that the prices of some stocks have reached ridiculous levels. For example, Chipotle has never split its stock, its shares are trading at more than $3,200, and it will soon split 50-to-1. When Nvidia split 10-for-1, its stock price was over $1,200.
What’s more, some companies appear more interested in attracting retail investors.
Nvidia noted that the purpose of the split is to “make equity more accessible to employees and investors.” Chipotle said the same thing.
Walmart also cited these factors in its statement announcing the split: “The stock split is part of Walmart’s ongoing review of optimal deals and spread levels, and is part of Walmart’s desire for its employees to feel that purchasing stock is easily achievable.
Do stock splits have an impact on prices?
Theoretically, no. The company’s value remains unchanged.
However, many academic studies point to various changes in the trading patterns of split stocks, although these changes are not uniform. one Academic Research A 2023 study published in the Journal of Risk and Financial Management found several positive benefits:
1) Transaction volume increases
2) Improved liquidity, or the ability to trade large volumes of shares without affecting the price
3) Stock splits increase the company’s shareholder base
These changes can have subtle effects on stock prices.
Candidate for Stock Split?
If a retail-focused company suddenly becomes more price-sensitive, there are some obvious candidates. The “over $1,000” club in the S&P 500 is smaller and getting smaller: Chipotle ($3,230), Broadcom ($1,679) and Lam Research ($1,032) are all splitting their shares.
Boycotters include Booking Holdings ($3,852), Autozone ($2,809) and Deckers Outdoors ($1,026).
Other high-priced retail-focused stocks include Costco ($843) and Super Micro Computer ($872), which recently joined the S&P 500.
However, if corporate America smells a trend and can attract attention with a stock split, retail-oriented companies with much lower price positions may also be candidates.
These could include Spotify ($305), Ulta Beauty ($397), or even ServiceNow ($715), which has never split its stock.
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