Stock Splits Resurgence

Stock splits are experiencing a resurgence, with forecasts suggesting more activity in 2024 than any year since 2013, according to Bank of America.

Typically, elevated stock prices trigger splits, which provide more accessible entry points for potential investors. Bank of America notes that splits generally precede a period of notable outperformance.

The comeback of stock splits is notable, with a higher number of companies engaging in splits last year than in any year since 2013. This trend, according to Bank of America, could persist into 2025, presenting fresh opportunities for investors.

Companies often pursue stock splits to address the challenges high share prices pose for some investors. This is done by increasing the total shares outstanding while proportionately lowering the share price. For instance, Nvidia’s 10-for-1 split last year provided each shareholder with nine additional shares, decreasing its price from around $1,210 to approximately $121 per share.

A stock typically reaches high prices after significant upward movement. “Historically, stocks that undergo splits have yielded an average annual return of 28.4% over five years leading up to the announcement, with a notable 67% return in the year prior,” noted Jared Woodard, an investment and ETF strategist at BofA Securities.

This trend of outperformance continues post-split. “Following a split announcement, stocks have registered a total return of 25% in the following 12 months, compared to just 12% for the broader market index,” the note stated. “Splits in 2024 are anticipated to exceed historical averages, with the average stock gaining 17% within six months post-split.”

Nonetheless, other influencing factors exist. A challenging macroeconomic climate can lead to underperformance even for stocks that have split. For example, during the inflation spike in 2022, which led to Federal Reserve rate hikes and a bear market for the S&P 500, several stocks that split struggled in the following year.

“Stocks such as Amazon, Google, Tesla, and Dexcom faced difficulties in the year following their split announcements in 2022 as interest rates surged,” the note explained. “Recently, Super Micro Computer has seen a decline of about 50% since its split announcement in August 2024.”

In the note, Bank of America outlined a list of stocks with prices exceeding $500—representing the top 8% of stocks—marking them as prime candidates for splits in 2025. Below is the selection of stocks identified by Bank of America that also received a ‘Buy’ rating, along with their performance over the previous 12 months.