Splitting Up Is Hard To Do

7/18/2016


Stock splits, once a popular sign of company health and optimism, have become rare. Since 2008, the S&P 500 Index has averaged nine companies splitting their shares every year. In the previous 14 years, index components averaged 62 splits — with 100 or more splits in three of those years.

The recession-driven decline from 2008 through 2010 made sense, but splits have yet to recover to their former frequency. While the S&P 500 returned nearly 75% from the start of 2012 to the end of 2014, the index's stocks delivered only 35 splits, well below the historical average for a single year.

In this environment, predicting future splits is risky. While we stop short of promising a split in the year ahead, we've created a short list of stock-split candidates from our buy lists. These stocks stand out because of:

• A history of splits, suggesting the company is amenable to the idea.

• At least 65% returns since the last split, and at least 15% returns over the last six months, since companies aren't likely to split while their stock is going down.

• Solid operating momentum (at least 5% growth in sales and per-share profits over the last year).

• Expected annual profit growth of 10% or more over the next five years.

Will all four stocks in the table below split? Probably not. But they're likely thinking about it.

FOUR SPLIT CANDIDATES
Company (Price; Ticker)
Years Since
Last Split
Price At
Last Split
($)
Lam Research ($89; LRCX)
16.3
134
LabCorp of Amer. ($136; LH)
14.2
104
F5 Networks ($116; FFIV)
8.9
71
LKQ ($33; LKQ)
3.8
38

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