Until now, most stories that you may have read about Pixar (NASDAQ:PIXR) splitting usually involved the company getting ready to part with family entertainment giant Disney (NYSE:DIS) after their collaborative deal ends next year. But, no, this time it means that Pixar's shares are actually splitting, as the company announced a 2-for-1 split.
What does this mean for investors? Not much. Those who own the stock will have twice as many shares at half the price come next month. For accounting purposes, this is not a taxable dividend event, though you may want to adjust your cost basis per share accordingly.
Beyond that, there isn't much else. Some investors inexplicably love stock splits. More often than not the shares will open a few ticks higher on the news. Yet, when you get down to it, it's still a zero-sum game. No matter how many times you slice a pizza, you're still getting the same amount of grub.
There is a bullish theory that insists that a company splits its stock because it is optimistic about its future and knows capital appreciation will be coming sooner or later. That isn't always the case. Don't you think that Krispy Kreme (NYSE:KKD) wishes it could take back that 2-for-1 stock split four years ago so it wouldn't be mired in single digits right now? Sun Microsystems (NASDAQ:SUNW) would be trading at $16 instead of $4 if it weren't for 2-for-1 splits in 1999 and 2000. Again, it all adds up to the same market cap, but these companies took gambles on their extended popularity -- and investors bought in under that notion -- and got dutifully burned. Pardon the pun, but splits often boil down to the halves and the halve-nots.
Marvel (NYSE:MVL) -- which like Pixar has been a great performing Motley Fool Stock Advisor newsletter recommendation -- had a peculiar 3-for-2 stock split last year. It was done while the price was hovering around $30, and that meant that any kind of slip after the split would have the stock trading in the teens. That's pretty much what happened, even though the stock has bounced back nicely since its summer lows.
That's why one has to admire companies like Berkshire Hathaway that don't play the stock split game, wearing their meteoric share price like an undeniable badge of success.
Yet I understand why Pixar did this. With its stock now in the $90s, it would run someone roughly $9,300 for a round lot of 100 shares, and that may have made it a prohibitive purchase for a consumer-friendly company that probably counts many young families as prospective shareholders. But why are we still talking about round lots these days? Thanks to dirt-cheap discount broker commissions, you can pick up just a handful of shares and go from there.
Building your wealth gradually over the years? That's pretty much what Pixar has done with its animation studio empire, huh?
Some more recently drawn headlines:
- Brokerage commissions really have gotten pretty cheap these days.
- Pixar sold 5 million copies of The Incredibles the day it came out last week.
- Talk about it all and then some in our Pixar discussion board.
Longtime Fool contributor Rick Munarriz owns all of the Pixar releases on DVD. Yes, he owns shares of Pixar too -- and Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
