Preferring higher share prices and with little pressure from investors, firms eschew the move
By Erik Holm and Ben Eisen
Big companies are giving up on the stock split.
On Thursday, shares of Amazon.com Inc. almost brushed $1,000 before closing at $993.38.
The price increase, up from around $68 a decade ago, reflects the company's growth and dominance. But it also marks the latest example of a company letting its stock price rise without engaging in a "split" that boosts the number of shares in order to lower the per-share price. Google parent Alphabet Inc.'s Class A shares also are now close to $1,000.
Other companies are aspiring to such heights. So far this year, only two S&P 500 companies have split their stock. In all of last year, six companies in the large-company index did. That's down sharply from 20 years ago, when 93 S&P 500 firms split their shares, a rate of close to two per week, according to Birinyi Associates.
After decades of mostly remaining in a range between $25 and $50, the average stock in the S&P 500 is now trading above $98, the highest ever, according to Birinyi Associates.
A big stock price is "a new way of calling attention to yourself," said William C. Weld, a finance professor at the University of North Carolina's Kenan-Flagler Business School who has studied stock splits. It used to be that splitting shares signaled reliability and stability, he said. "Companies now are saying 'look at us, we're tough and strong.' "
In the 1990s, when stock picking for one's own account was in vogue, companies also considered splits a way to keep shares affordable for mom-and-pop investors. Even though nothing changes fundamentally about the company with a stock split -- it's like trading a dime for two nickels -- splits used to generate excitement and, often, a short-term pop for the shares.
In recent years, though, individuals have gravitated toward index funds. And institutional investors don't like stock splits, because increasing the number of shares increases their trading costs.
"If you split the stock, you are effectively providing a source of income to the brokerage community," said Weston Hicks, the longtime chief executive of insurer Alleghany Corp., which trades at $588.15. "We're trying to appeal to the long-term investor, and keeping a consistent scorecard is the way to do that."
The godfather of the no-split camp is Berkshire Hathaway Inc. Chairman Warren Buffett. Berkshire's Class A shares are the priciest U.S.-listed equities. At $247,850 a share, Berkshire is up more than three-million percent since Mr. Buffett bought his first slug of the stock in December 1962. He paid $7.50 a share for his initial stake.
For years, Mr. Buffett said he didn't want to split the shares because he didn't want to attract people who found such a move to be a good reason for buying a stock.
"People who buy for non-value reasons are likely to sell for non-value reasons," he said in a 1984 letter to shareholders.
There are other reasons behind the trend. Before the rise of discount brokerages and a decline in trading commissions in the 1990s, even small-time investors often had to buy shares in round lots of 100, which meant that a high price could make such a purchase prohibitively expensive. These days, though, retail investors can buy as little as one share, and often pay commissions of $10 or less.
Academics who have studied share splits have also posited that executives who split their company's stock may be motivated by a desire to keep their share prices from looking expensive. Now, some companies and their investors seem to treat higher stock prices as a sign of accomplishment, a phenomenon that economist Richard Thaler from the University of Chicago Booth School of Business calls "equally nonsensical."
"But at least Amazon can say 'well, the market sent us all the way up here,' " said Mr. Thaler, who co-wrote an academic paper on stock splits with UNC's Mr. Weld in 2009.
For his part, Mr. Weld theorizes that companies may have held off on splitting shares in recent years in response to the financial crisis, when stock prices dropped sharply and some big companies were humbled into performing reverse splits to raise their share price to avoid being delisted.
Even the biggest critics of the share split say there are times when it is appropriate, so long as it's about more than a cosmetic lowering of the share price. Alphabet, then called Google, effectively split its shares by creating a new class of stock in 2014. Apple Inc. did an unusual 7-for-1 split that same year, a move that lowered the price of the shares to a level where the company could be comfortably added to the price-weighted Dow Jones Industrial Average in 2015. And even Berkshire Hathaway did a stock split in 2010, when it divided its Class B shares 50-for-1 alongside its acquisition of railroad Burlington Northern Santa Fe Corp. Those cheaper shares were used to buy out small BNSF shareholders in the cash-and-stock deal.
Amazon founder and CEO Jeff Bezos hasn't ruled out the idea of a split, which the firm did three times as a young public company.
A shareholder at Amazon's annual meeting in Seattle on Tuesday asked Mr. Bezos if he would consider splitting the company's shares to give members of the middle class and younger people the chance to afford the shares.
Mr. Bezos responded that it's something the company has considered. "We don't have any plans to do this at this point, but we'll continue to look at that," he said.
Ball Corp., a supplier of metal packaging and one of the two S&P 500 companies that split its stock this year, did so in tandem with a boost to its dividend. The dual move was designed to send a signal to investors that it has strong cash flow, though the firm believes the dividend increase is the more important part of that transaction, according to Scott Morrison, the company's chief financial officer. "The split in and of itself isn't really that exciting," he said.
--Laura Stevens contributed to this article.