Stock Split Brought an Average Annual Return of 25.4%, twice more than the S&P 500

After announcing a 10-to-1 stock split last week, the second one in its history, the AI giant Nvidia made its stock ownership more accessible to retail investors and improved its chances of keeping its rally going for longer. Over the past four decades, many other companies have done the same, and in most cases, a stock split helped them even outperform the market.

According to data presented by Stocklytics.com, a stock split brought an average annual return of 25.4% over the past four decades, or twice as much as the S&P 500.

Average Stock Split Return Almost Tripled Since the 2000s

Companies choose to split their stock to make it more accessible to smaller investors and increase their stock`s liquidity. Investors see this move as a sign of strength, so companies that split their stock usually outperform the S&P 500 in the year following their announcement.

As the data from Bank of America’s Research Investment Committee shows, stocks that split beat the S&P 500 by a significant margin in each of the past four decades. During the eighties, companies that split their stock saw an average annual return of 26%, nearly double that of the S&P 500.

A decade later, the average 12-month return skyrocketed to over 35%, the highest value in the past four decades, while the S&P 500`s average return rose by 3.7%. However, the 2000s brought a considerable drop, with companies seeing an average 9.5% return in the 12 months after the stock split, which was still significantly higher than the S&P 500`s negative 1.1%.

Statistics show that a stock split brought an average annual return of 18.3% in the past fourteen years, or 5% more than the S&P 500, while the four-decade average stands at 25.4% or more than twice the return of the S&P 500 during the same period.

Will Meta Platforms Be the Next Big Stock Split in 2024?

An uptick in the number of companies doing stock splits this year, with Nvidia being the largest among them, has made analysts wondering who could be next, with many pointing to Meta Platforms.

Unlike all the other companies in the Magnificent Seven group, Mark Zuckerberg’s company has never done a stock split, and many believe it`s on the verge of doing one. Since its IPO in 2012, Meta`s price has jumped more than 13 times, going from an initial $38 to over $505 last week, and is now the most expensive stock among the Magnificent Seven.

In comparison, the world`s most valuable company, Microsoft, has had nine stock splits since going public, most of them during the dot-com era in its early history. The last one, a 2-for-1 stock split, occurred in February 2003. Apple has split shares five times, Amazon four, Alphabet three, and Tesla two times, with its most recent one occurring in mid-2022 in a 3-to-1 split.