Video game specialist Nintendo (NTDOY +2.18%) (OTC: NTDOF) just announced a stock split. In most cases, I would tell you that the split won't make much of a difference to investors.
However, this one is different. Nintendo's stock split will make its shares much more accessible to people buying the original shares on the Tokyo stock exchange.
What's new?
On Tuesday, Nintendo's board of directors set up a 10-for-1 stock split. The move will take place over the weekend of October 1, 2022. This is the first split in Nintendo's history.
Investors have been asking Nintendo to execute a stock split for many years, and the company has been open to the idea since 2019. The official reason behind this split is to "reduce the minimum investment price," which will increase the liquidity of Nintendo's stock and grow its investor base.
OTC: NTDOY
Key Data Points
Stock splits are not a big deal over here
For U.S.-based investors, stock splits don't really matter much. Your broker is happy to sell you a single share of Amazon for roughly $2,100 today. If you only have $200 to invest this month, nearly any American broker offers fractional shares, too.
One-twentieth of an Amazon share today will cost you approximately $105. Assuming that share prices don't move much before the company's 20-for-1 stock split takes effect in early June, you'll end up with one share of Amazon whether you buy one share after the split or one-twentieth of a share right now.
For Japanese stocks, they can be crucial
Things are different in Japan. On the Tokyo exchange, you must still buy stock in lots of 100 shares each, and fractional shares are nowhere to be seen. The standard lot size was lowered from 1,000 shares to 100 just three years ago, so things are moving toward more relaxed requirements.
One share of Nintendo was worth 57,250 Japanese yen at Thursday's market close, which translates to roughly $445 per share. Multiply that by 100, and you get a minimum investment of nearly 6 million yen, or $44,500. That's a stretch for many retail investors.
A minimal investment in Nintendo will drop to around $4,450 after the split. That's a much more sensible starting level, and Nintendo is likely to attract more interest from retail investors in October.
Wait, how does that work out for U.S. shareholders?
American investors are shielded from the eccentricities of the Tokyo exchange.
There are two different American Depositary Receipts (ADR) available on the over-the-counter market. The NTDOF ticker represents a single share of the underlying Tokyo-based stock. The NTDOY receipt translates into eight shares of Nintendo's original stock.
On American trading platforms, 100-share lots aren't a requirement. You can pick up a single share in the company today of the NTDOY ticker for just $55, and many brokers also offer fractional shares of Nintendo's ADR. There's no lower limit for your Nintendo investment over here, practically speaking. And when the split takes effect, dropping the two ADRs down to roughly $45 and $5.50 per stub, the real limit shrinks even further.
This pizza will be equally delicious in four, eight, or 16 slices. Image source: Getty Images.
But the stock split on the Japanese side of the equation should affect American investors, too.
First, the broader investor base and more free-flowing liquidity should translate into higher stock prices -- at least temporarily. Furthermore, giving retail investors greater access to Nintendo's stock should make the company more transparent. The company is known for keeping its cards close to the vest, sharing only the bare minimum of required operating data and making every product announcement feel like a surprise.
Nintendo's stock split is more important than Amazon's or Tesla's. It's a huge move for Japanese investors, and even American shareholders should see some real-world benefit from this move.
