Do Stocks Split Anymore? What Investors Should Know

Stock splits remain a topic of interest for investors. Though their frequency has varied, companies still use them as a tool. Understanding the mechanics and implications of stock splits can provide clarity for those navigating the stock market.

What is a Stock Split?

A stock split is a corporate action where a company increases its outstanding shares by issuing more to current shareholders. For example, in a 2-for-1 split, an investor holding one share receives an additional share. Common split ratios include 2-for-1, 3-for-1, or even 10-for-1.

This action proportionally decreases the market price of each individual share. If a stock traded at $100 before a 2-for-1 split, its price would adjust to approximately $50 per share immediately after the split. Despite the change in share count and price per share, the total market capitalization of the company and the overall value of an investor’s holding remain unchanged.

Reasons Companies Implement Stock Splits

Companies split their stock to make shares more accessible to a broader range of investors. A high per-share price can deter individual investors from purchasing a full share. By lowering the nominal share price, a stock split attracts new retail investors and broadens the company’s shareholder base.

Another motivation for a stock split is to increase the liquidity of the company’s shares. A lower share price leads to higher trading volume, making it easier for investors to buy and sell. Increased liquidity contributes to more efficient price discovery and reduces the bid-ask spread. A stock split can also signal management’s confidence in the company’s future growth, making shares more attractive.

Factors Influencing Fewer Stock Splits

Despite their benefits, stock split frequency has decreased due to modern market dynamics. The rise of fractional share ownership is a significant factor, as many brokerage platforms now allow investors to buy portions of a share. This diminishes the need for companies to split their stock for affordability.

The increasing dominance of institutional investors also plays a role, as these large entities are less concerned with a high per-share price. Institutional portfolios involve substantial capital, making the nominal cost of a single share less relevant. Their focus remains on a company’s fundamentals and market capitalization rather than the individual share price. Some companies also prefer to maintain a high share price, viewing it as a symbol of prestige or success, as seen with Berkshire Hathaway’s Class A shares.

Impact of Stock Splits on Investors

A stock split impacts an investor’s portfolio by changing the number of shares held and the price per share, but not the total investment value immediately after the split. For example, if an investor owns 100 shares of a company trading at $200, their investment is worth $20,000. After a 2-for-1 split, they would own 200 shares at $100 each, maintaining the $20,000 total value. Proportional ownership in the company also remains unchanged.

Stock splits are not considered a taxable event, as no new value is created; only existing shares are divided. Investors need to adjust their cost basis per share for tax reporting. If a company pays dividends, the dividend per share adjusts proportionally after a split, though the total dividend income an investor receives remains consistent.

Recent Stock Split Activity

Despite their reduced frequency, stock splits continue to occur, particularly among high-growth companies with significantly appreciated share prices. In 2022, prominent technology companies like Amazon and Alphabet each executed 20-for-1 stock splits. Tesla also conducted a 3-for-1 split that year.

More recently, in 2024, several notable companies announced or completed stock splits. Walmart undertook a 3-for-1 split, Nvidia performed a 10-for-1 split, and Chipotle implemented a 50-for-1 split. These actions demonstrate that stock splits remain a relevant corporate finance tool as stock prices climb.