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STOCK SPLITS COULD BE ON THE REBOUND

Last year saw a climb in stock splits, according to the BofA Research Investment Committee as 24 companies announced splits in 2024, the most since 2013,

In a note on Thursday, BofA said the rise in split announcements are a "clear signal" the company managements are examining shareholder-friendly policies.

BofA notes that prior research found that splits have been a bullish signal for companies that employ the tactic, with an average return of 25% a year later compared with 12% for the S&P 500 .SPX. In 2024, the results were more pronounced, with the average stock up 17% in the following six months.

Stock splits have become an uncommon occurrence, with BofA noting that there have been just 44 split anno0uncements over the past five years, versus the peak of 364 announcements between 1996 and 2000.

BofA found that a stock will usually split after a streak of strong performance. Since 1980, they have shown a 28.4% annual return for the five years before the announcement with an average return of 67% in the year prior.

However, BofA also found that the distribution of stocks that have a split shows that the performance of a few strong companies may pull up the average performance.

Outperformance is also not guaranteed after a split, as the firm found that stocks see negative returns about 30% of the time, with an average decline of 22%, indicating stocks showing signs of strong momentum can struggle in a tough macro environment, citing Amazon.com AMZN.O, Google parent Alphabet GOOGL.O, Tesla TSLA.O and Dexcom DXCM.O, which announced splits in 2022, but then succumbing to rising interest rates.

Lastly, BofA said that stocks with high prices are "typically prime candidates for split announcements" as management teams might feel lower prices can broaden access to the stock or signal shareholder friendly policies. When those high prices are driven by strong returns, a split is even more likely and there are currently 39 S&P stocks trading above $500 a share, according to BofA.

(Chuck Mikolajczak)

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