A stock split is usually a positive sign that a company is performing well enough that it can justify splitting its shares to bring down its price. And a lower price point can make the stock more liquid -- not all brokerages allow for the purchase of fractional shares, and that can put a high-priced stock out of the reach of some investors. Plus, announcing a stock split also makes for a positive press release that is likely to drive some excitement around the stock.
While Amazon, Alphabet, and Shopify have all announced stock splits within the past few years, it isn't just tech stocks that deploy this move. One healthcare company that has split its shares several times in the past and that could be overdue for reducing its stock price again is UnitedHealth Group (UNH +6.97%).
Image source: Getty Images.
UnitedHealth's last stock split was in 2005
Five times since 1992 health benefits company UnitedHealth split its shares at a rate of 2:1. That means shareholders effectively doubled their share count each of those times although the overall value of their investments in the company would have remained unchanged (because the stock price would also have been split in half). In the early 2000s, UnitedHealth was aggressive in increasing its share count, announcing three stock splits between 2000 and 2006.
However, there have been no splits since then. And for a stock that's trading around $500, that's a high enough price where a stock split could certainly make sense; Shopify recently announced a split, and its shares trade lower at about $440.
Why a stock split might make sense
A big advantage of a stock split is that it draws attention to a stock and can lead to a flurry of buying activity. And for a stock that's performing well, that can help bolster its share price. When Apple split its shares in 2020, both its stock price and trading volumes increased:
Although the price increase can be attributed to other factors and it's hard to say how much on an effect the stock split had, there's no denying that there was more excitement surrounding the stock itself. For a business like Apple that generally is a strong performer, that can help to amplify the stock's returns.
For UnitedHealth, its share price has actually been rising over the past few years despite a decline in trading volume:
However, in 2022, its shares have fallen flat as the bullishness has worn off (although its performance is still better than that of the S&P 500, which is down 13% this year). Injecting the markets with some positive news and reminding investors how successful UnitedHealth has been over the years -- consistently generating profits, free cash flow, and paying dividends along the way -- could help attract more attention to the stock. That could be particularly important at a time when many growth stocks are crashing and investors have been left scrambling, looking for a safe investment to hold -- a role that UnitedHealth's stock could fit nicely.
Stock split or not, UnitedHealth is a great buy either way
Experienced investors know that a stock split doesn't mean anything in either the short or long run. The move doesn't change the value of your investment, and it's ultimately a discretionary move for management to make, which also means it's next to impossible to predict. And so while it may seem like UnitedHealth's stock is overdue for a split, that still doesn't mean it'll happen. Investors only need to look as far as Berkshire Hathaway's class A shares, which are trading for more than $485,000, as proof that price alone doesn't predict a stock split.
It's the fundamentals that matter in the end, and that's why for long-term investors, UnitedHealth is a solid stock to add to your portfolio, whether it splits its shares or not.
