Walmart ‘s decision to split its stock 3-for-1 has revived an old debate: When is the right time to split a stock? There’s no clear answer to this, but one fact is clear: Stock splits are far less common than 20 or 30 years ago. That’s likely because the institutional base for stock ownership has come to dominate the market. Institutional investors invest by dollar value, not by shares. They would typically buy, say, $1 million in stock and don’t care what the price is. However, the relentless rise of tech stocks in recent years has caused several high-profile stock splits in the tech world: Palo Alto Networks: 3-for-1 split (September 2022) Tesla: 3-for-1 split (August 2022) Alphabet: 20-for-1 split (July 2022) Amazon: 20-for-1 split (June 2022) Nvidia: 4-for-1 split (July 2021) Trade Desk: 10-for-1 split (June 2021) Apple: 4-for-1 split (August 2020) However, most of these companies had dramatic share price growth in recent years. Walmart, by contrast, has seen more modest growth: Its share price is up only 60% since 2018, a bit below the overall S & P 500. What effect does a stock split have on trading? One 2022 academic study found several positive benefits: 1) Trading volumes go up. 2) Liquidity improves (liquidity is the ability to trade a lot of shares without moving the price). 3) Stock splits increase the shareholder base for the company. These academic findings are the likely reason for Walmart’s decision. Walmart specifically cited these factors in its statement announcing the split: “The stock split is part of Walmart’s ongoing review of optimal trading and spread levels and its desire for its associates to feel that purchasing shares is easily within reach. More than 400,000 associates participate in Walmart’s Associate Stock Purchase Plan today, which allows eligible associates to buy stock conveniently through payroll deductions and provides a 15% company match on the first $1,800 each year.” Increasing the ownership base among Walmart associates and employees seems to have been an especially strong motivating factor: “Sam Walton believed it was important to keep our share price in a range where purchasing whole shares, rather than fractions, was accessible to all of our associates,” said Doug McMillon, President and CEO of Walmart. “Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come. As Sam said, ‘We’re all in this together. That’s the secret.'”
