Stock splits are all the rage these days. Some of the largest and most prominent stocks on the market are getting ready to divide their market cap into many more slices over the summer. But why stop there? Several high-priced stocks seem ripe for a stock split of their own, perhaps before the end of this year. For example, I would not be surprised to see hardware store operator Lowe's (LOW 1.99%) announcing a stock split very soon.
Here's why.
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A 30-year history of Lowe's stock splits
Lowe's is no stranger to stock splits. The company has executed twelve splits so far, but it has been a while since the last one. The company executed 2-for-1 splits 5 times between 1992 and 2006, but the proverbial pizza cutter hasn't touched this stock in the last 16 years.
Looking back at the market data around that 14-year period of fairly regular splits, you'll find that Lowe's shares were trading at a split-adjusted $1.25 per stub in the summer of 1992. Here's what happens when you back out the effects of the five splits, so we can look at the prices that traders and investors saw back then:
|
Date |
Event |
Split-Adjusted Closing Price |
Unadjusted Closing Price |
|---|---|---|---|
|
6/29/1992 |
2-for-1 split |
$1.25 |
$39.25 |
|
4/4/1994 |
2-for-1 split |
$3.97 |
$59.75 |
|
6/29/1998 |
2-for-1 split |
$10.45 |
$83.00 |
|
7/2/2001 |
2-for-1 split |
$18.54 |
$73.60 |
|
7/3/2006 |
2-for-1 split |
$30.42 |
$60.34 |
|
4/19/2022 |
Current price |
$203.04 |
$203.04 |
Data was collected from Yahoo Finance on April 19, 2022.
Lowe's has a long history of slicing up its stock while share prices were still comfortably in the double-digit region. In the 2006 split announcement, management said that the move was necessary to let Lowe's employees and customers invest in the stock at reasonable prices.
Why did the stock split at super-low prices?
You might scratch your head over some of these price points. Why would Lowe's worry about individual investors' access to shares when the stock price stood below $40 per share? But then you forget about inflation, and also about the fact that investments used to be made in 100-share batches. Online brokers with ultra-flexible trading policies weren't around in 1992, after all.
So if you made a minimal trade to pick up 100 shares of Lowe's before the split in June 1992, that transaction cost you nearly $4,000 at the time. That's more than $8,000 in today's inflation-adjusted dollars. And when you run the pricing table through the inflation adjustment tool, the adjusted value of a 100-share trade near each split falls in a range from $8,000 to $14,700.
And these days, Lowe's stock is overdue for a stock split in the light of the earlier split history. The stock has absolutely crushed the broader market over the last three decades, and it would make perfect sense to apply another stock split today:
That being said, you shouldn't hold your breath waiting for Lowe's to announce a stock split. The days of buying round lots of 100, 200, or 300 shares are long gone, and every broker will gladly let you pick up a single stub any time you like. In fact, retail investors would still have comfortable access to Lowe's shares if the stock multiplied tenfold or hundredfold from today's prices, because most brokers offer trading in fractional shares, too.
So stock splits make less of a difference than they used to, and they aren't much more than a psychological adjustment nowadays. Still, a trend is a trend, and it wouldn't hurt Lowe's to jump aboard the stock-split bandwagon someday soon.
