Looking for an easy way to make money fast? It's hard to argue with S&P 500 stock splits. But the question is who's next to do it?
Bank of America isn't losing any time looking for the next S&P 500 stock splits. It's targeting S&P 500 stocks trading for $500 or more a share. This group of split candidates, including Booking Holdings, AutoZone and Chipotle Mexican Grill, represent nearly $6 trillion in market value, says new research from BofA.
Why the rush to find the next split? Stocks in the S&P 500 that split, most recently Amazon.com, Alphabet, Apple and Tesla, on average are up 25% just a year later. That's as close as it comes to easy money on Wall Street, blowing away the 9% gain of the S&P 500 in that time, BofA found. Certainly, Amazon's reaction to its 20-to-1 split announced this week is an example. Shares surged more than 5% on just the one day following the announcement.
"We found that splits historically are bullish for the companies that enact them," said the BofA report co-authored by investment and ETF strategist Jared Woodard. "If more corporate managers adopt shareholder-friendly postures, it could spark a wave of splits and bring more investors flows into the market."
Is Time Ripe For S&P 500 Splits?
If you're looking for a good time to get in ahead of stock splits, you're looking at one now. The number of stock splits is poised to jump after steadily falling since the late 1990s, says BofA.
Just 28 companies split their shares in the past five years. That's down more than 90% from the peak from 1996 to 2000, BofA says. Notable splits in the 2020s are Tesla on Aug. 10, 2020, Apple on July 30, 2020 and Old Dominion Freight Line in Feb. 2020. Shares of all three shot up in the following 12 months.
Expect more stock splits now. There are now 22 S&P 500 stocks, or nearly 5% of the index, trading for $500 or more. That's the price level that BofA thinks a split is more likely. The average per-share price of S&P 500 stocks is now at nosebleed levels: more than 185 (excluding Berkshire Hathaway's sky-high per share price).
But more importantly, BofA suggests that the positive reactions many recent companies are getting following splits will encourage more of them. "We believe absolute equity returns could remain volatile this year, but fresh inflows could provide support for companies that enact shareholder-friendly policies," said the report.
Splitting is paying off. Shares of S&P 500 companies that split since 1980 are up 7.8% in the following three months, well ahead of the index's 2.1% gain in that time. And they outperform even more after a year. Stocks that split since 1980 jumped more than 25% in the 12 months following the split, BofA says. That's sharply higher than the S&P 500's 9.1% gain in that time.
Even companies that shied away from splits are doing them. Amazon announced a surprise split on March 9 along with a $10 billion stock buyback.
What Splits Mean
A split in itself isn't financially meaningful. The company's market value, all things held equal, stays the same. While you'll own 20 times more Amazon shares after the split, the share price is divided by 20, too.
But a split is a bullish signal for S&P 500 investors, BofA says.
"Some of the outperformance is likely due to momentum. Companies that announce splits have typically seen sustained market outperformance and expect that outperformance to continue," BofA said. "Once the split is executed, investors who have wanted to gain or increase exposure may start to rush for the chance to buy."
Next S&P 500 Stock Splits?
S&P 500 Stocks Trading For More Than 500 A Share
| Company | Symbol | Close on March 10 | Stock YTD % ch. | Sector |
|---|---|---|---|---|
| NVR | 4,776.56 | -19.2% | Consumer Discretionary | |
| Amazon.com | 2,936.35 | -11.9% | Consumer Discretionary | |
| Alphabet | 2,648.59 | -8.6% | Communication Services | |
| Booking Holdings | 2,031.69 | -15.3% | Consumer Discretionary | |
| AutoZone | 1,867.9 | -10.9% | Consumer Discretionary | |
| Chipotle Mexican Grill | 1,469.03 | -16.0% | Consumer Discretionary | |
| Mettler-Toledo | 1,338.34 | -21.1% | Health Care | |
| Tesla | 838.3 | -20.7% | Consumer Discretionary | |
| Equinix | 706.47 | -16.5% | Real Estate | |
| BlackRock | 697.2 | -23.8% | Financials | |
| O'Reilly Automotive | 675.73 | -4.3% | Consumer Discretionary | |
| TransDigm | 633.68 | -0.4% | Industrials | |
| Regeneron Pharmaceuticals | 630.36 | -0.2% | Health Care | |
| Broadcom | 587.73 | -11.7% | Information Technology | |
| Charter Communications | 562.13 | -13.8% | Communication Services | |
| Bio-Rad Laboratories | 541.34 | -28.4% | Health Care | |
| SVB Financial | 539.51 | -20.5% | Financials | |
| Thermo Fisher Scientific | 538.25 | -19.3% | Health Care | |
| ServiceNow | 533.59 | -17.8% | Information Technology | |
| Costco Wholesale | 532.88 | -6.1% | Consumer Staples | |
| IDEXX Laboratories | 524.44 | -20.4% | Health Care |
