Should the Stock Market Split?

Although that phrase may be hard to compute, consider this:  Companies split because they feel that their stock price is too high.  By doing this, they are also pricing new shareholders (and current shareholders) out of the market.

Also, consider that when you split your shares, you also split your EPS (earnings per share).  There is a common fear with splitting the shares, that you will dilute the company and there will be too many shares outstanding, which will ultimately destroy the EPS. 

Take a look of how high prices are currently in the market.  Let’s look at a few:  Lockheed Martin (LMT) is $107, Boeing (BA) is $100, and Union Pacific (UNP) is pushing $160.  Now consider if those companies split, their stock price splits.  Think of how many more investors would get into Boeing at $50 or Lockheed at around $55.  Plus their dividend yield would stay intact. 

The Dow Jones as it stands today is about 15,300.  If most big dividend companies split, the market could drive to near 30,000 because of all the new money that will flow in.  However, the market could also get destroyed from all the dilution of shares.  What do you think?  Do you think the market would ultimately fail if this happened? 

There have been recent splits of large companies in the last couple years already including Nike, Coca-Cola, Estee Lauder, and Colgate-Palmolive.    

Maybe some more big boys should split.....P&G.......United Technologies.......Apple.......

Two is better than One

A few posts ago I suggested that maybe Pfizer would be more valuable if it were split into two entities.  A short time ago, Kraft (KFT) split into two separate companies.  In the short time that the two new companies have been trading, they already beat the old parent company by $11 Billion in market cap value. 

The two new companies, Kraft Foods Group (KRFT) and Mondelez International (MDLZ), are both up significantly from the prices they started at.  Kraft Foods Group has a solid yield of about 4%, where Mondelez (the bigger entity) has a yield right under 2%.  MDLZ trades at a considerably lower price than KRFT, however I think both are very undervalued.  They will continue to grow and continue to raise their dividends.

Maybe Kraft will do what their old parent (Altria) did and break into more and more profitable companies. 

Consider:  MO > PM

                      > KFT > MDLZ

                                 > KRFT

Altria spun off Philip Morris International (PM) and Kraft (KFT).  Kraft split into Mondelez International (MDLZ) and Kraft Foods Group (KRFT).  If you owned Altria before they started spinning off companies, God love you! (If you owned Altria before the spinoffs, you would have gotten shares of all companies for free)

Will the tree grow more?  Will PM spinoff a company? 

The main goal is to maximize shareholder value, and that’s exactly what Altria did and will continue to do.