Walmart’s Stock Split Decision Sparks Debate on Optimal Timing

Walmart‘s recent announcement to split its stock 3-for-1 has reignited the longstanding discussion surrounding the ideal moment for such a move. While there is no definitive answer, one thing is certain – stock splits have become significantly less frequent in the past two to three decades. This decline can largely be attributed to the domination of institutional investors in the market, who base their investments on dollar value rather than share count.

The surge of tech stocks in recent years has bucked this trend, resulting in several high-profile stock splits within the tech industry. Notable examples include Palo Alto Networks, Tesla, Alphabet, Amazon, Nvidia, Trade Desk, and Apple. These companies experienced remarkable growth in their share prices, leading to the decision to split their stocks.

Conversely, Walmart’s stock has witnessed more modest growth, with its share price increasing by a moderate 60% since 2018, slightly below the overall performance of the S & P 500.

An academic study conducted in 2022 shed light on the positive repercussions of stock splits in trading. Firstly, trading volumes tend to rise significantly. Secondly, liquidity improves as stock splits allow for more shares to be traded without impacting the price. Lastly, stock splits expand the company’s shareholder base.

These findings likely influenced Walmart’s choice to split its stock, as indicated in the company’s official statement. Walmart stated that the stock split is part of their ongoing assessment of optimal trading and spread levels. Moreover, it aims to ensure that its associates find purchasing shares easily within reach. Presently, over 400,000 associates participate in Walmart’s Associate Stock Purchase Plan, which facilitates the convenient purchase of stock through payroll deductions and provides a 15% company match on the first $1,800 annually.

Notably, increasing ownership among Walmart associates and employees emerged as a particularly significant motivation for the stock split. Walmart’s President and CEO, Doug McMillon, highlighted founder Sam Walton’s belief in keeping the share price accessible to all associates, in alignment with the company’s growth and future plans. McMillon expressed their intention to encourage associate participation, emphasizing unity by quoting Sam Walton, who famously said, ‘We’re all in this together. That’s the secret.’