Stock splits are losing their allure with American executives amid one of the broadest rallies ever, sending the number of shares trading above $100 to a record and showing the rising dominance of institutions in equity markets.
Gains of 20 percent or more pushed Boeing Co. and Amgen Inc. past $100 in 2013, joining 64 companies in the Standard & Poor’s 500 Index above the threshold, twice the level in 2010, according to data compiled by Bloomberg. Nine companies have split their stock this year, compared with 42 annually since 1996, data from S&P show, helping send the average share price to $65.96 last quarter, the highest on record.
Splits have been diminishing since the bull market began as pressure eases to hold prices at levels that make it easier to amass shares. While the practice has been considered a sign of confidence in future growth, executives at companies such as Apple Inc. say it does no good for shareholders and have refrained from the action since the start of the rally.
“As retail investors become less important to the investor base, the behavioral reasons for splitting the shares are less compelling,” Ravi Dhar, a professor at the Yale School of Management who has studied financial markets, said in an Aug. 12 phone interview. “These companies didn’t want to encourage too many individual investors or day traders. They wanted to keep the price high.”
Ninety-eight S&P 500 companies have surpassed the price at which they last split, with the median stock trading 27 percent higher, according to data compiled by Bloomberg. The split price has been about $96 on average, based on data from 389 firms since 1981.
Getting Expensive
Priceline.com Inc., trading at $940, has never divided its shares. Google Inc. is the second-highest priced company in the S&P 500 at $869.81, and Apple, at $498.50, last split in 2005. MasterCard Inc. has never taken the action, even after reaching a record $654 this month.
Splits, for decades a way of enticing individuals by lowering share prices, have declined as professional investors increased their role in the U.S. equity market. Ownership of stocks by institutions rose to about 67 percent in 2010 from 34 percent in 1980, according to a study by Marshall Blume and Donald Keim at the Wharton School at the University of Pennsylvania.
Those figures exclude exchange-traded funds, securities that track equity indexes and trade like shares throughout the day. The ETF industry has seen assets invested in stocks expand 56 percent since 2010 to $1.17 trillion, based on data from the Washington-based Investment Company Institute through June 30.
Price Agnostic