Splitting with Pride

Corporations have many ways to demonstrate strength, from capital expansion to dividend increases, but the stock split is becoming one of the most popular. During all of last year, 43 companies listed on the New York Stock Exchange split their stock, exchanging each share for two or more new ones whose total value equaled the original. In 1964's first quarter alone, 43 Big Board companies have done the split, including RCA, Pan American, Campbell Soup and A.T. & T.,*whose 2-for-l split next month will be the biggest division of stock in history. Last week Caterpillar Tractor and May Department Stores joined the march by proposing 2-for-l splits. It looks like a big year in Splitsville.

Move on the Rise. To the sharp eyes of Wall Street, any company with steadily rising earnings and a stock price ranging upwards of $75 per share is ripe for a split. On the Big Board today at least 50 companies fill these specifications, among them Du Pont, Eastman Kodak, G.E., Jersey Standard and Corning Glass. As the stock market continues to rise, even more companies will become split candidates. While splits in themselves do not give a stockholder any more than he already has, Wall Streeters love them because they usually represent a management declaration of confidence that very often edges the stock price upward.

Corporations try to make sure that their stock will climb from the split level by declaring the move, when possible, during a bull market. They also help the stock to move by splitting it to a price that will attract buyers. RCA was selling in the high 90s when its directors were debating a split; they settled for a 3-for-l division that brought the price per new share down to the 30s--the range at which many experts believe that the public is most attracted to a stock. Other companies feel that for prestige purposes their stock should sell at a higher price, and in this case might split only 2 for 1. Ideally, the dividend should be raised at the same time. "If the dividend is halved on each share in a 2-for-l split," says RCA Executive Vice President Robert L. Werner, "the split is meaningless."

A Few More Tons. With their stock cheaper and more plentiful after a split, most companies usually find themselves with more stockholders. They like this because widely scattered ownership gives more stability to the stock price and allows it to reflect the company's earnings performance more precisely, rather than to flutter at every new headline. In addition, a split gives the company a wider base on which to draw for new capital. A.T. & T. is raising $1.2 billion by giving its 2,250,000 stockholders the right to buy additional shares of its common stock at a special price. Such companies as General Motors and RCA, which have many consumer products to sell, like lots of stockholders because shareowners are likely to become customers as well. Even Youngstown Sheet & Tube gave this factor consideration in its recent 3-for-l split. "Stockholders have a stake in the company," says President Alfred S. Glossbrenner, "and we would suppose that they may try to help us sell a few more tons of steel here and there."

The only time anyone ever cries over split stock is when it is a reverse split--one share exchanged for several that the stockholder holds. This is regarded as a management effort to raise the market value by cutting the number of outstanding shares, but it often has the opposite effect. The public, seeing it as an admission that the price cannot be brought up in any other way, usually shuns such stock.

Another time to be skeptical, warns

San Francisco Investment Banker Claude N. Rosenberg Jr., is when a stock selling at $10 to $20 splits. "This smells of promotion," he says, "because there is really no reason to bring a stock down in price from these levels." Almost all stockbrokers agree that no one should buy a stock just because it is being split. The reliable formula is still to consider only what the real value of the company is.

*And TIME Inc. whose three-for-one split was proposed in February.

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