When a company decides to split its stock, it generates a lot of excitement. A stock split is 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 you own.
Nevertheless, lower stock prices for a growing business attract a lot of retail investor attention. For example, after splitting their shares in 2020 and 2021, prices for Apple (NASDAQ:AAPL) (4-for-1 split on Aug. 28, 2020) and Nvidia (NASDAQ:NVDA) (4-for-1 split on July 19, 2021) both zoomed higher.
More high-profile stock splits are coming in 2022. Here are the details and what you need to know about a stock split.
Stock splits in 2022
As has often been the case, this year’s upcoming stock splits are dominated by big tech companies that have been enjoying rapid growth and expect to continue expanding for many more years to come.
| Company | Stock Split Ratio | Announcement Date | Ex-Date | Payable Date |
|---|---|---|---|---|
| Amazon (NASDAQ:AMZN) | 20-for-1 | March 9, 2022 | May 27, 2022 | June 3, 2022 |
| Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) | 20-for-1 | Feb. 1, 2022 | July 1, 2022 | July 15, 2022 |
| Shopify (NYSE:SHOP) | 10-for-1 | April 11, 2022 | June 22, 2022 | June 28, 2022 |
| DexCom (NASDAQ:DXCM) | 4-for-1 | March 25, 2022 | May 19, 2022 | June 10, 2022 |
| Tesla (NASDAQ:TSLA) | 3-for-1 | August 5, 2022 | August 17, 2022 | August 24, 2022 |
1. Amazon
In March 2022, Amazon’s board of directors announced it approved a 20-for-1 stock split for shareholders of record on May 27, 2022. After years of fast and steady growth, Amazon stock trades for more than $2,000 per share as of the time of this writing. The split will reduce that share price to just over $100 at today’s prices. The last time Amazon split its shares was back on Sept. 1, 1999, when it executed a 2-for-1 split.
2. Alphabet
Alphabet also announced a 20-for-1 stock split in tandem with its fourth-quarter 2021 earnings update in February 2022. Shareholders of record on July 1, 2022, will receive 19 additional shares for every share owned on July 15, 2022. The company’s last split was in early 2014 before it changed its corporate name from Google to Alphabet.
3. Shopify
In April 2022, Shopify announced changes to its governance structure to keep voting power in the hands of co-founder and CEO Toby Lütke. Along with the changes, the company announced a 10-for-1 stock split to be executed on June 28, 2022, for shareholders of record on June 22. The e-commerce software provider is aiming to make ownership of its shares more accessible as it pursues long-term growth. This will be the first time Shopify stock has split since its initial public offering (IPO) in 2015.
4. DexCom
Glucose monitoring technology company DexCom announced a 4-for-1 stock split in March 2022. The company will execute the distribution of new shares on June 10 for shareholders of record on May 19, 2022. This is the first time DexCom has split its shares.
5. Tesla
In late March 2022, Tesla filed a report with the Securities and Exchange Commission (SEC) indicating it would put a stock split proposal to a vote at its annual shareholders meeting this summer. The details are pending as of the time of this writing, but Tesla will likely reveal more details soon. Its annual shareholder meeting usually takes place in the autumn every year. The last Tesla 5-for-1 stock split took place in August 2020.
Why companies do stock splits
Stock splits (as well as reverse stock splits) typically do not change the fundamental value of a company, nor do they 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 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 these pay benefits issued to their employees.
Additionally, many companies repurchase shares as part of a return on investment to existing shareholders. Again, a smaller share price can help a company manage these purchases and the return to investors.
Take Amazon as an example. In the filing for its upcoming stock split, 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.”
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Should you buy a stock because of an upcoming split?
If you are a long-term investor, meaning you plan 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 has good reasons for initiating a split, but it doesn’t change the fundamental value for shareholders.
Rather, when deciding whether to invest based on a stock split, look for companies benefiting from long-term secular growth trends, that are growing faster than their peers, and that have healthy profit margins and balance sheets, among other factors.
