Do Stock Splits Really Matter? (2024)

Stock splits grab investor attention, and for good reason. A hot stock that has seen its share price dramatically increase (often into the triple digits or more) will suddenly appear more affordable.

In the last two months, three high-profile companies announced stock splits: Chipotle CMG, Broadcom AVGO, and Nvidia NVDA. Chipotle took the title of one of the biggest stock splits in history, with investors getting 50 shares for every one they owned.

But while stock splits generate headlines, do they matter to returns, or are they purely cosmetic?

What Is a Stock Split?

A stock split divides each share into multiple new ones, effectively decreasing the price of each share. However, it does not affect the stock’s overall market value. For the most part, a company will announce a split when one share’s price has risen to the point where it may be inaccessible to some individual investors.

The frequency of stock splits ebbs and flows. Over the past decade, there have been 54 splits among the current members of the S&P 500, according to FactSet. The most splits were announced in 2015, with 12, followed by 2022′s nine. The weakest years for splits were 2017 and 2023, which only saw four each, following just behind 2020, when five were announced. Already this year, five companies in the S&P 500 have announced splits.

“To some degree, a stock split adds to positive market sentiment, as it indicates management is confident in the underlying growth dynamics of their business,” says Morningstar chief US market strategist Dave Sekera. “Yet a split is more like window dressing to not scare off retail investors looking at high-price stocks who don’t understand the relative value of the stock is unchanged compared with its split-adjusted earnings.”

Do Stocks Perform Better or Worse After a Split?

We screened the S&P 500 for companies that split their stock in the past 10 years using data from FactSet. Any split that happened less than a year ago was excluded, and one-year returns after the split dates were calculated for each remaining stock. Performance was measured against the market using Morningstar Direct, comparing each stock’s returns against rolling monthly returns for the S&P 500.

Of the 54 stocks that split in the last 10 years, one year following their splits, 18 saw an increase of 0.1%-20.0% in price, 16 saw an increase of 21.0% or greater, 12 saw a decrease of 0.1%-15.0%, and eight saw substantial decreases of 15.0% or more. With no overall trend, this data suggests stock splits are just cosmetic. “A split does not change the economic value of a company; it only changes the proportionate amount of ownership each share represents,” says Sekera.

The three stocks with the highest returns were medical device company DexCom DXCM (which split in 2022), farm and heavy construction machinery manufacturer Paccar PCAR (2023), and telecom company Charter Communications CHTR (2016). Each had returns above 40%.

DexCom is unusual in posting a significant loss of nearly 32% in the year before its split. Meanwhile, Paccar gained 19.05% for the 12 months before its split, and Charter rose 13.48%. In the year following its split, DexCom gained 71.45% while the S&P 500 returned 8.94%. Paccar split in February 2023, and one year later, the stock had a return of 50.4%, double the gain on the S&P 500. Charter had a return of 40.45% one year after its May 2016 split. In that period, the S&P 500 returned 19.58%.

The three stocks with the lowest post-split returns were real estate services company CoStar Group CSGP (which split in 2021), medical instruments and supplies maker Intuitive Surgical ISRG (also in 2021), and nitrogen producer CF Industries Holdings CF (2015). In the year before their respective splits, CoStar returned 22.88%, Intuitive Surgical gained 42.21%, and CF Industries returned 35.89%.

After CoStar split in June 2021, its stock fell 31.64% while the S&P 500 lost 7.9%. Intuitive Surgical split in October 2021 and had a subsequent one-year loss of 37.75% while the S&P 500 fell 7.99%. CF Industries split in June 2015 (the month with the most stock splits in the past 10 years), then lost 53.78% over the next year while the S&P 500 returned 1.83%.

While investors may think of hot tech companies when stock splits come to mind, the data show a different picture. During the period we screened, consumer cyclicals saw the most splits of any sector, with 10, followed by financial services with nine, healthcare with seven, and technology with six. Energy and real estate were at the bottom, with one split each. Utilities had two, basic materials and communication services had four, and consumer defensive and industrials had five.