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Fewer Stock Splits, Record Share Prices

A tactic to lure investors goes out of style, and average share prices rise
Fewer Stock Splits, Record Share Prices
Photograph by Scott Eells/Bloomberg

Stock splits, designed to attract investors by making stocks more affordable, have become a rarity since the 2008 financial crisis. Four companies in the Standard & Poor’s 500-stock index split their shares this year, and 16 did in 2011. That’s down from an average of 35 annually from 2004 through 2007 and a recent peak of 102 in 1997, data compiled by S&P and Bloomberg show.

When a company splits its stock, holders get one or more shares for each share they own, while the price of the stock comes down proportionately, leaving the market value of the company unchanged. Traditionally, corporate boards have favored splits when the company’s share price has risen so high that individual investors find it difficult to buy 100 shares at a time. They often aimed to do a split at a time when they were “confident” the stock would maintain its value or rise, says Doug Ramsey, chief investment officer at Leuthold Group, a money management firm. The market plunge that accompanied the financial crisis has made corporate executives cautious about splits. “There’s a reluctance to split a stock after such a decline is still fresh in the collective memory of management,” he says.