By Dow Jones Business News, March 01, 2013, 02:02:00 PM EDT
By Matt Jarzemsky
Despite rumors earlier this week, Apple Inc. ( AAPL ) didn't announce plans to split its stock. That is in keeping with
a trend toward loftier share prices from companies still shellshocked by the sharp declines of the financial crisis.
Throughout the 1990s, 64 companies in the Standard & Poor's 500-stock index, on average, split their stocks each year,
according to data from S&P Dow Jones Indices. Since the financial crisis, that trend has gone the way of Starter jackets
and Reebok Pump sneakers, hovering around 10 from 2008 through last year.
That slump has to do with the aftershock of the 2008 crisis, said Nannette Buziak, head of equity trading at ING
Investment Management. Major benchmarks are just recovering from a 2008 stock-market plunge that took many companies'
share prices to lower levels than corporate officers would like.
"The market has just dictated it because of the correction; a lot of companies had their share prices impacted on a
downward basis," Ms. Buziak said.
Rumors began to swirl Tuesday that Apple would announce a stock split-which would be its first in eight years-fueling
intraday gains in the company's shares. The iPad maker said Tuesday it doesn't comment on rumors, and there was no
mention of such plans at the company's annual meeting Wednesday. An Apple spokesman couldn't immediately be reached for
further comment Friday.
Splits' unpopularity has had ripple effects on the broader market. For one thing, stock-trading volume would be higher
were it not for the recent dearth in splits, according to a May report by Credit Suisse Group AG's ( CS ) trading-strategy
team. High-priced securities tend to see fewer shares change hands each day, in part because of the simple fact that
trading a single share involves more money.
To wit, Berkshire Hathaway Inc.'s (BKRA) class-A shares, recently trading at $152,500, have seen just 534 shares
change hands, on average, the last 30 days, according to FactSet.
If a fund manager overseeing $100 million wants one company to account for 5% of her portfolio, she will have to trade
a lot more shares costing $50 than $500 to get there. Volume has tumbled in recent years when measured by the number of
shares traded but remained relatively stable in terms of the dollar value of stocks bought and sold, according to Credit
Suisse.
Lower share volume moving the same amount of money can squeeze commissions at exchanges and brokerages. Conversely, it
means lower trading costs for investment firms like Ms. Buziak's ING.
Highlighting the impact splits have had on share volume, a Citigroup Inc. ( C ) reverse stock split in 2011, which
turned every 10 of the bank's shares into a single share, almost single handedly erased 5% of total U.S. share-trading
volume, according to the Credit Suisse study.
Academic research suggests splits help companies' share prices, said David Ikenberry, dean of the University of
Colorado's business school.
During the 1990s, companies that announced splits outperformed peers with similar stock profiles by 9% in the
following year, Mr. Ikenberry found in a 2002 study. A possible explanation is that companies are more likely to split
their stocks if executives expect the share prices to increase, so such announcements signal bullishness from insiders,
he said.
"What you're getting is a self-selected sample of companies that are signaling optimism through what we all understand
to be a relatively inconsequential news event," he said.
Whether splits come back into vogue depends in part on chief financial officers believing their stock price is at a
stable level, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. The broader market settling into a
stable price range could aid that, he said.
"If you care about stock price and you have a comfort zone--say $70--you want to make sure that when you split that
stock you can at least sustain that comfort zone," Mr. Silverblatt said. "If we can maintain the prices, more companies
are going to be in that comfort level."
In terms of absolute prices-as opposed to relative value, which is more important to investors-stocks are getting more
expensive. The current average price for an S&P 500 stock is $63.17, double the $31.36 at the end of 2008. That exceeds
the 67% gain in the S&P 500 over the same time frame.
The emergence of popular but pricey stocks such as Apple and Google Inc. ( GOOG ) has led some individual investors to
trade them using options instead of shares, said J.J. Kinahan, chief derivatives strategist at online brokerage TD
Ameritrade Holding Corp. ( AMTD ). That is because options, which convey the right to buy or sell shares at a given price,
typically have lower prices than the underlying shares they are tied to.
"Those who have less money in their brokerage account are using options, tying up less capital, to still get the same
position they want reflected," Mr. Kinahan said.
Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com
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03-01-131402ET
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