The Logistics of Apple and Tesla’s Stock SplitsAugust 14th 2020
By: Spencer Israel
The recent stock split announcements by Apple and Tesla made investors’ ears perk up for one reason: the number of companies enacting stock splits has been declining for decades.
According to a study in the journal Financial Management, stock splits peaked in 1982, when 23% of public companies had undergone a stock split at some point. In 2009, that number was down to 1%.
The downward trend of stock splits has been especially pronounced in large-cap companies. Data from S&P Dow Jones Indices showed that just four companies in the S&P 500 Index underwent a stock split in 2017 compared to 102 in 1997.
Apple, of course, is no stranger to stock splits. The upcoming 4-for-1 split will be the fifth in its history, and first since a 7-for-1 split in April 2014. For Tesla, this 5-for-1 stock split will be the first split in its history.
It’s understandable why stock splits would fall out of favor. Fractional share investing has made it so investors with smaller account sizes can still afford higher-priced stocks—essentially making the primary purpose of a stock split mute. At the same time, people like Warren Buffett have argued that there is an allure to having a higher stock price, and that they attract more serious investors who are willing to invest for the long term.
How The Splits Will Work
There are two important dates to know for stock splits: the record date and the adjustment date.
The record date is the deadline the company sets to own the stock if you want to receive the additional shares. The adjustment date is the day the stock actually gets split and trades at its new, lower price.
For Apple, the record date is August 24. Anybody who owns AAPL as of the market close on that day will receive three additional shares in their account at the close on the adjustment date—August 31.
For Tesla, the record date is August 21, so anybody who owns TSLA as of the close on that day will receive the four additional shares at the close on the adjustment date—also August 31.
Note: if you sell either stock between the record date and adjustment date, you will not be eligible to receive the additional shares.
Trading The Adjustment
Stock splits do not inherently change the value of a company, but that doesn’t mean they can’t cause volatility.
TSLA rallied 8% after hours on the day it announced its stock split. AAPL was also volatile after its split announcement, though the company announced its split within its quarterly earnings report, which could also be attributed to the stock’s movement.
CNBC’s Karen Finerman recently noted on Fast Money that “Stocks that split have tended to be doing well anyway. So there is that sort of bias.”
Regarding Tesla, Bloomberg’s Dani Burger said that “For Tesla, it’s all about the retail investors. Retail interest is part of why we’ve seen the stock surge so much.”
Based on the movement in TSLA after its split announcement, it’s not unreasonable to expect more volatility when both splits go into effect on August 31 at the market close.
The increase in retail trading over the past few months coupled with stocks like Tesla, Amazon, Alphabet, and Shopify rising to thousands of dollars per share had some wondering if we’d ever see a major stock split again. Apple and Tesla have indicated that the trend has not gone entirely away just yet.
The author is long the S&P 500 in his retirement account.
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