Stock splits, enticements to investors in bull markets for decades, have been pushed to the brink of extinction by chief executive officers still recovering from the 2008 financial crisis.
Four companies in the Standard & Poor’s 500 Index split their shares this year and 16 did in 2011, down from an average of 35 from 2004 through 2007 and a fraction of the 102 in 1997, data compiled by S&P and Bloomberg show. The disappearance of splits less than five years after stocks began their biggest plunge since the Great Depression underscores changing behavior by CEOs as well as individuals who haven’t returned to equities.
About 20 percent of S&P 500 companies split stock in 1997, S&P data show. On average, 12 have done so each year since 2009, after an 18-month recession spurred by more than $1 trillion of bank losses and writedowns tied to subprime mortgages. With the S&P 500 up 102 percent since the 12-year low in March 2009, the effect has been to push 47 stocks above $100 a share, a record, according to Bloomberg data going back to 1990.
McDonald’s Corp., which spun off Chipotle in 2006, split shares for the 12th time in 1999, with then-CEO Jack Greenberg citing the company’s “desire to continue to position McDonald’s as an attractive investment for individual investors -- customers, employees, franchisees and suppliers.” McDonald’s split five times in the 1980s, never letting the stock climb higher than $106.88.
Daily trading in New York-based Citigroup has shrunk more than the 90 percent reduction that would naturally occur after a 1-for-10 reverse split, data compiled by Bloomberg show. CEO Vikram Pandit said last month part of the reason for the change was to “encourage institutional and other long-only buyers of the stock to invest in our company and also to discourage high- frequency trading that fuels volatility.”
“The market has turned more institutional,” Russell said in a phone interview on April 26. “As more companies are less concerned about stock splits and stock splits are a natural volume creator, you could see the trend in volume continuing to be sloppy.”
Even when investors aren’t spooked by high share prices, the trades they carry out in companies such as Google may not be counted because of rules on so-called odd lots, or trades of fewer than 100 shares. Such transactions aren’t reported in official volume or compiled in the Trade and Quote Database, or TAQ, maintained by the largest exchanges.