Walmart (WMT) investors are gearing up for a stock split at the end of this week.
For the 12th time in 50 years, Walmart will conduct a stock split in an effort to make shares more affordable for its employees. Walmart last carried out a 2-for-1 stock split on April 20, 1999. This time, it will be the company’s first 3-for-1 stock split.
Here’s how it will work: Shares issued in the stock split will be payable after market close on Friday, Feb. 23, for investors who own shares of the retailer “at the close of business” on Thursday, Feb. 22. On Monday, Feb. 26, at market open, Walmart will begin trading on a post-split basis.
This split will increase the number of shares of Walmart’s outstanding common stock to approximately 8.1 billion from 2.7 billion shares before the split. Although the stock will trade at a lower price, it won’t change the underlying value of existing investments in the company.
In a note to clients, CFRA analyst Arun Sundaram explained that the action is “purely cosmetic” with no “impact to fundamentals.” However, he noted, stock splits “are perceived as a shareholder-friendly move and a sign of confidence.”
Why Walmart chose to issue stock now
Walmart CEO Doug McMillon said the timing of the stock split made sense given Walmart’s growth future plans, which it announced at its last annual meeting.
Sundaram pointed to other recent announcements from the company, like a pay increase for store managers from $117,000 per year to $128,000 per year, with bonuses of up to 200% of base salary. Walmart also announced a $9 billion dollar investment to modernize stores, which he said “should help drive traffic and volume growth … and help offset waning average ticket growth.”
Paying homage to founder Sam Walton, McMillon said he wants all employees to feel a part of Walmart’s story, writing in a statement, “As Sam said, ‘We’re all in this together. That’s the secret.'”
Babson College director Laurie Krigman said there are three reasons why the company would decide on a stock split.
First, it signals “confidence” in the future of the company. Second, it brings the stock price down to the “preferred trading range.” The third reason is liquidity, where “more shares are trading, even though it’s the same dollar amount that’s trading,” Krigman said.
“It just kind of made sense to do a stock split,” Jefferies analyst Corey Tarlowe said to Yahoo Finance. “And this way, it just becomes a little bit more accessible for further employees, and it’s all about value and affordability, which is really core to their their culture.”
What it means for Walmart stock
As of late, Walmart stock has gotten a lot of buzz. Shares of the retailer hit a record high on Feb. 20 following the company’s earnings report and stock split announcement.
Some see the stock split as a positive catalyst since more retail investors are able to afford the lower-priced stock post-split.
“We view (the stock split) as incrementally positive to WMT’s growth and multiple expansion prospects,” Tarlowe said.
However, it hasn’t always played out that way. Since 1975, Walmart stock has seen positive returns in the three months following a stock split six out of nine times.
And overall, the record is pretty mixed. For instance, Walmart saw a 73% return in the three months after its July 1982 stock split. But shares of Walmart declined by 20% in the three months after the 2-for-1 split in February 1993.
In the end, Krigman offered a warning to potential investors: Be sure you understand the fundamentals and how the company is performing first.
“It really doesn’t mean anything,” Krigman said about the stock split. “It’s an accounting gimmick.”
Krigman reminded investors who own shares that, after the split, they “are economically in exactly the same position.”
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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