When a company decides to split its stock, it generates a lot of excitement. A stock split occurs when a company increases its number of shares outstanding by dividing existing shares or by multiplying share count and reducing share price to compensate. Although a stock split lowers share prices, it doesn't change the fundamental value of a business itself or the total value of the shares owned by shareholders.
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Lower stock prices for a growing business attract a lot of retail investor attention. For example, after splits, prices for Apple (AAPL -0.9%) (4-for-1 split on Aug. 28, 2020) and Nvidia (NVDA -0.95%) (4-for-1 split on July 19, 2021) both zoomed higher.
As of this writing, there are no high-profile stock splits scheduled for 2024. However, several high-profile stock splits made headlines in 2023. Here's what you need to know about recent stock splits from 2023.
Stock splits in 2023
Stock splits in 2023
2023 has been a relatively quiet year for stock splits.
| Company | Stock Split | Announcement Date | Ex-Date | Payable Date |
|---|---|---|---|---|
| PACCAR (NASDAQ:PCAR) | 3 for 2 | Dec. 6, 2022 | Jan. 17, 2023 | Feb. 7, 2023 |
| Monster Beverage (NASDAQ:MNST) | 2 for 1 | Feb. 28, 2023 | March 13, 2023 | March 27, 2023 |
| Churchill Downs (NASDAQ:CHDN) | 2 for 1 | April 25, 2023 | May 5, 2023 | May 19, 2023 |
| Novo Nordisk (NYSE:NVO) | 2 for 1 | August 10, 2023 | Sept. 14, 2023 | Sept. 20, 2023 |
| Mueller Industries (NYSE:MLI) | 2 for 1 | Sept. 26, 2023 | Oct. 6, 2023 | Oct. 20, 2023 |
| Celsius Holdings (NASDAQ:CELH) | 3 for 1 | Nov. 2, 2023 | Nov. 13, 2023 | Nov. 15, 2023 |
1. PACCAR
Truck designer PACCAR announced its 3-for-2 split in December 2022. The company paid out an extra share of stock for every two shares owned by shareholders of record as of Jan. 17, 2023. The distribution took place at the close of the market on Feb. 7, 2023. PACCAR's previous stock split was also a 3-for-2 split, in October 2007.
2. Monster Beverage
The energy drink leader announced the stock split during its fourth-quarter 2022 financial update on Feb. 28, 2023. For shareholders of record on March 13, 2023, Monster executed a 2-for-1 split by paying one extra share for every share owned; the stock price was halved to reflect the payment. The distribution took place at the close of the market on March 27, 2023. The company's previous split was a 3-for-1 split in November 2016.
Fiscal Quarter
In the financial world, a quarter refers to a three-month period used for reporting and recording financial performance, typically representing one-fourth of a company's fiscal year.
3. Churchill Downs
Horse racing complex Churchill Downs, home of the Kentucky Derby, announced its 2-for-1 stock split on April 25, 2023. Shareholders of record on May 5 received an additional share for each share they owned. The distribution took place at the close of market on May 19, 2023. Churchill Downs' last stock split was a 3-for-1 split in January 2019.
4. Novo Nordisk
Novo Nordisk, the maker of popular weight-loss drug Wegovy, announced its 2-for-1 stock split on Aug. 10, 2023. Shareholders of record on Sept. 14 received an additional share for each share they owned. The distribution took place on Sept. 20. Novo Nordisk's previous stock split was a 5-for-1 split in 2014.
5. Mueller Industries
Copper piping and metals manufacturer Mueller Industries announced its 2-for-1 stock split on Sept. 26, 2023. Shareholders of record on Oct. 6 received an additional share for each share they owned. The distribution took place on Oct. 20. Mueller Industries' previous stock split was a 2-for-1 split in March 2014.
6. Celsius Holdings
Fast-growing energy drink company Celsius Holdings had another fantastic year of market share gains against leaders like Monster Beverage in 2023. After big stock gains, the company announced a 3-for-1 stock split, which it completed in mid-November 2023. The split was the company's first since its IPO (initial public offering).
Why companies do stock splits
Why companies do stock splits
Stock splits (as well as reverse stock splits) typically don't change the fundamental value of a company. They also don't change an investor's ownership stake in the company. For example, if you own a slice of pizza equal to one-quarter of the whole pie, cutting your slice up into smaller pieces doesn't change the fact that you still have one-quarter of the total pizza.
Since a stock split doesn't really fundamentally change anything, why would a business choose to do one? Often it has to do with attracting new investors. A smaller price per share gets a lot of individual investors interested in a popular company.
Additionally, many publicly traded companies give employees an ownership stake in the business by granting them shares in the form of stock-based compensation. A smaller share price can help a business manage the benefits issued to its employees.
Employee Stock Ownership Plan (ESOP)
An employee stock ownership plan (ESOP) is a benefit structure that pays workers in company shares.
Also, many companies repurchase shares as part of a return on investment to existing shareholders. Again, a smaller share price can help a company manage the purchases and the return to investors.
Take Amazon (AMZN 0.87%) as an example. In the filing for its stock split in 2022, the company made the following statement: "The Stock Split would give our employees more flexibility in how they manage their equity in Amazon and make the share price more accessible for people looking to invest in the company.”
Should you invest?
Should you buy a stock because of an upcoming split?
If you are a long-term investor who plans to own shares of a company for at least a few years, an upcoming stock split is no reason to buy an ownership stake in a business. A company generally has good reasons for initiating a split, but it doesn’t change the fundamental value for shareholders.
Rather, look for companies that are benefiting from long-term secular growth trends, are growing faster than their peers, and have healthy profit margins and balance sheets.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo has positions in Amazon, Apple, and Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, Celsius, Monster Beverage, and Nvidia. The Motley Fool recommends Churchill Downs and Novo Nordisk. The Motley Fool has a disclosure policy.
As an expert in finance and stock market dynamics, I've spent years analyzing trends, corporate actions, and their implications for investors. My expertise is built on a foundation of rigorous academic study, professional experience in financial consulting, and a deep personal interest in stock market mechanics. This experience has equipped me with a nuanced understanding of concepts like stock splits, market sectors, and investment strategies, allowing me to provide insights into the practical implications of these actions for companies and investors alike.
Stock Split: A stock split increases a company's number of outstanding shares by dividing each existing share. This action reduces the price per share but does not alter the company's market capitalization or the proportional ownership of existing shareholders. For instance, in a 2-for-1 split, each share is divided into two, halving the share price. Historically, companies like Apple and Nvidia have seen their share prices increase post-split, potentially due to improved accessibility for retail investors.
Fiscal Quarter: A fiscal quarter is a three-month period in a company’s financial calendar used for reporting financial performance. It represents one-fourth of a fiscal year. Companies often announce significant decisions like stock splits in their quarterly updates, aligning these strategic moves with their broader financial reporting.
Employee Stock Ownership Plan (ESOP): An ESOP is a program that provides a company's workforce with an ownership interest in the company, often in the form of stock. This approach aligns employee interests with shareholder interests and can be an effective tool for employee motivation and retention.
Market Sectors: The stock market is divided into sectors that represent significant areas of the economy, such as technology, healthcare, or finance. These sectors allow investors to categorize and focus their investments based on specific industry dynamics.
Investment Considerations: When considering an investment, especially in the context of a stock split, it's important to look beyond the split itself. Key factors to consider include the company's long-term growth potential, industry position, profit margins, and financial health. A stock split doesn't fundamentally change a company's value; it merely makes the shares more accessible price-wise.
Tax Implications: Investing also involves understanding the tax implications of your decisions, such as capital gains taxes on profits from selling stocks. It's crucial to understand these basics to manage your investments effectively.
In summary, while stock splits like those of PACCAR, Monster Beverage, and others in 2023 can attract investor attention and potentially affect trading liquidity, they don't change the fundamental value of a company. Smart investing requires a holistic view of the company's financial health, market position, and growth prospects, beyond the mechanical changes of a stock split.
