Not long ago, public companies with high-flying stock prices would sometimes split their shares as a means of attracting new investors. The typical split was two for one, in which companies doubled the number of outstanding shares but cut the price per share in half, believing the lower price would rouse investors’ interest.
But stock splits are a lot less common these days. In 1997, 102 companies in the S&P 500® Index split their stocks;1 in 2016, only seven companies did so2—a decline of more than 93%.
What gives? Perhaps most important, investors are increasingly turning to mutual funds and exchange-traded funds (ETFs) instead of buying discrete stocks, so companies have less incentive to court individual investors with low prices.
Investors’ perception of such stratospheric stocks has also changed, says Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research. “Many of today’s leading technology companies, in particular, boast share prices well into the triple digits—a trait some investors have come to equate with successful business models and attractive growth opportunities,” he says.
If cost prohibits you from buying a certain stock, “many mutual funds and ETFs offer large allocations for a fraction of the price,” Randy says, “while also providing exposure to other companies and industries you otherwise might not have considered.”
The bottom line: Splits aren’t the only way to gain access to high-priced stocks.
1Lu Wang, “Stock Split Is All but Dead and a New Study Says Save Your Tears,” Bloomberg Markets, 08/23/2017.
2Reinhardt Krause, “Comcast Joins Apple, Netflix as Stock Splits Rarer,” Investors.com, 01/27/2017.