2024 has been a momentous time for stock splits, with over a dozen leading companies choosing to split their stocks this year.
Yet while splitting one’s shares seems to be all the rage these days, a few prominent stocks with high share prices have chosen not to participate.
Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »
Warren Buffett’s conglomerate Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has famously never split its A shares, which go for a whopping $670,000 apiece! Berkshire also has lower-priced B shares, which began trading in 1996 — but even those shares have appreciated to split-worthy levels of $453 per share, which is still lofty for many retail investors.
Another Berkshire-related stock also looks overdue for a split: the late Charlie Munger’s favorite stock, Costco (NASDAQ: COST), which just touched the $1,000 per share mark.
Yet when asked by a Wall Street analyst on its recent earnings call about a split, Costco management said it has no plans to do so, for reasons that are relatively new to market trading.
A stock split is when a company lowers its price per share while raising its share count by an equal percentage.
Keep in mind, this doesn’t affect the value of the overall company at all, nor do splits make any sort of difference in the company’s fundamental operating performance. So why should investors pay attention to splits?
Traditionally, a company would split its stock after a strong run, when a high price-per-share would potentially sideline new small-dollar investors who might not be able to invest $500 or $1,000 at a time. That had the potential effect of limiting a stock’s investor pool, thus potentially limiting performance.
A split relieves this limitation, expanding the pool of investors who could buy the stock while also increasing a stock’s liquidity, which is another positive for investors.
Finally, a split usually indicates optimism from management for further share price gains.
As the artificial intelligence revolution has taken off, one AI-oriented technology stock after another has split their stock. The poster-child for splits has been Nvidia, which split its stock 4-for-1 in 2021 and then a whopping 10-for-1 this past summer.
But Nvidia isn’t the only stock to do so. Other semiconductor and tech stocks benefiting from an AI uplift have split their stocks this year, following several Magnificent Seven tech giants that split their shares over the past few years.
While Costco isn’t a tech stock, its share price has certainly performed like an AI winner, up nearly 50% on the year, with a long-term outperformance that mirrors the very best tech stocks. That outperformance has catapulted Costco’s share price to the $1,000 per share milestone.
Yet when asked on the recent earnings conference call with analysts whether the company would join the dozen-plus major large-cap stocks that have split their shares this year, Costco CFO Gary Millerchip said that at least for the near-term, the answer was no.
Why would that be? Millerchip said it’s because Costco employees and retail investors likely have access to brokerages that allow fractional share buying.
Fractional share buying is when a brokerage allows investors to buy fractions of single shares, essentially allowing investors to invest according to a specified dollar amount, rather than a whole number of shares.
Although fractional share buying was invented in 1999, it remained somewhat of a novelty until 2019, when a slew of tech-savvy online brokers began offering fractional share buying. Now, it’s a mainstream offering.
While Costco has split its stock in the past, Millerchip explained that fractional share buying has sort of made stock splits a moot point today:
I think for us, the way we think about it is the economic arguments that were true in the past are a little bit less clear because retail investors and employees both have the ability now to buy fractional shares. But we do also recognize that there’s a benefit of the stock feeling more affordable for our retail investors and employees who are very important constituents for us. So, we’ll continue to evaluate over time.
Of course, while fractional share purchasing is available at most brokerages, not every single type of account can buy fractional shares today. Meanwhile, Costco has 333,000 employees across its business, so it’s likely not every single one of them has an account that allows fractional shares.
So, never say never on a future stock split for Costco. That being said, the company’s management certainly likes to do things in its own way and probably doesn’t feel the need to “join the crowd.”
That independent streak has led to Costco’s historical outperformance, but it also may extend the time period before a split. Therefore, if you are thinking of buying Costco today, you shouldn’t wait for a split. If the current share price is out of your range, try seeking out a brokerage that enables you to buy fractional shares.
Before you buy stock in Costco Wholesale, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Costco Wholesale wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $825,513!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of December 16, 2024
Billy Duberstein and/or hsi clients have positions in Berkshire Hathaway and Costco Wholesale. The Motley Fool has positions in and recommends Berkshire Hathaway, Costco Wholesale, and Nvidia. The Motley Fool has a disclosure policy.
—
Blog powered by G6
Disclaimer! A guest author has made this post. G6 has not checked the post. its content and attachments and under no circumstances will G6 be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever (including, without limitation, any direct or indirect damages for loss of profits, business interruption or loss of information) resulting or arising directly or indirectly from your use of or inability to use this website or any websites linked to it, or from your reliance on the information and material on this website, even if the G6 has been advised of the possibility of such damages in advance.
For any inquiries, please contact [email protected]
