Understanding Stock Splits and Their Current Trend
Stock splits are gaining popularity again as companies look to make their stock more appealing to everyday investors. In light of the surge in retail investor activity during the pandemic, many companies are focusing on making their shares easier to obtain. Big names like Walmart and Nvidia have taken the lead by implementing stock splits, signaling their dedication to engaging a wider range of investors, including their own employees.
As we look at mid-2024, the financial landscape has noted an impressive occurrence: 100 stock splits in the second quarter alone, based on Wall Street Horizon's review of over 11,000 global stocks. This marks a significant increase when compared to last year’s second quarter, which recorded 101 announcements. Furthermore, the first half of this year has already seen 168 split announcements—the highest total we've seen in more than a decade.
Types of Splits: Traditional vs. Reverse
While the total number of stock splits is on the rise, it’s important to highlight that reverse splits have been more common than traditional splits in recent years. A reverse split works by consolidating multiple shares into fewer ones, thus driving up the stock price while keeping the company's overall market value the same. This tactic is often essential for companies needing to remain in compliance with the listing standards of specific exchanges.
Early data from Q3 indicates that this trend is set to continue. In July 2024, there were 30 split announcements, with 18 being reverse splits and only 10 traditional splits. This made it the busiest July for splits in nine years. In August, the number dipped slightly to 27 announcements, but historically, this number still exceeds the ten-year average of 22 splits per August.
Such increased activity in stock splits highlights the need for investment teams to adjust stock prices in response to these corporate changes. TMX's Price Adjustment Curve (PAC) has been meticulously tracking these necessary price adjustments. In just the second half of 2024, there have been 229 price adjustments, marking the highest total in five years.
Highlights of Stock Split Announcements in 2024
Despite the rise in reverse splits, traditional splits continue to garner the most attention from both media and investors. Key companies that have announced traditional splits in 2024 include:
Walmart (NYSE: WMT) executed a 3-for-1 split in February.
Nvidia (NASDAQ: NVDA) announced a 2-for-1 split in March.
Chipotle (NYSE: CMG) rolled out a 2-for-1 split in June.
Broadcom (NASDAQ: AVGO) executed a substantial 50-for-1 split in June.
Williams-Sonoma (NYSE: WSM) conducted a 10-for-1 split in July.
On the side of reverse splits, various companies also made headlines in 2024:
Qiagen (NYSE: QGEN) performed a 24.25-for-25 split in January.
Rent the Runway (NASDAQ: RENT) executed a 1-for-20 reverse split in April.
BuzzFeed (NASDAQ: BZFD) completed a 1-for-4 reverse split in May.
New York Community Bancorp (NYSE: NYCB) implemented a 1-for-3 reverse split in July.
SITE Centers Corp (NYSE: SITC) carried out a 1-for-4 split in August.
The Container Store (NYSE: TCS) enacted a 1-for-15 reverse split in September.
Allbirds (NASDAQ: BIRD) finalized a 1-for-20 reverse split in September.
The Implications for Investors
As we progress through Q3, the momentum from stock splits doesn’t seem to be slowing down. With companies enhancing their profiles through split announcements, there’s a good chance others will follow suit. Data suggests that traditional splits often correlate with positive stock price trends. Bank of America reports that the average returns from these announcements typically hover around 25% in the year following the split, indicating that companies of all sizes might seek to utilize these splits to boost their visibility and attract more investments.
Frequently Asked Questions
What are stock splits?
Stock splits are actions taken by companies to increase the number of shares available by dividing existing shares into multiple ones, making the shares more affordable for investors.
Why are stock splits trending in 2024?
Stocks splits have become more frequent in 2024 as companies aim to attract retail investors and increase accessibility following a surge of interest from investors after the pandemic.
What is the difference between traditional and reverse splits?
A traditional split increases the number of shares while lowering the stock price, whereas a reverse split decreases the number of shares and raises the stock price, without changing the company's overall market capitalization.
Which companies have made significant stock splits in 2024?
Notable companies include Walmart, Nvidia, Chipotle, and Broadcom for traditional splits, while Qiagen, Rent the Runway, and BuzzFeed are among those that executed reverse splits.
How do stock splits affect investors?
Stock splits can make shares more accessible, potentially improve liquidity, and lead to increased investor interest, possibly resulting in better stock performance over time.
