News
Nvidia stock split is not something investors should ignore: Morning Brief
This is the summary of today’s morning summary, which you can sign up to receive in your inbox every morning along with:
Nvidia (NVDA) shares closed at a record high of $1,038 on Thursday.
In less than a month, this closing price will be closer to 104.
This is because, alongside your blockbuster earnings report on wednesdaythe company announced plans to split its shares 10 for 1, meaning existing shareholders will receive 10 Nvidia shares for every 1 they own at a price of 10% of market value.
On the surface, this is just division.
The number of Nvidia shares in circulation increases and the price per share falls; there is no change in the value of the business.
But how TKer’s Sam Ro noted in February after Walmart (WMT) announced its own 3-for-1 stock splitmarket history is not so neutral on the matter.
Data from Bank of America cited by TKer showed that the average 12-month return for any stock after a stock split is 25.4%, more than double the average annual return for the overall market.
In other words, companies are more likely to split their shares in good times than in bad times. Remarkable, given that Nvidia’s stock split also came with a 150% increase in its dividend.
Meanwhile comment from its CEOJensen Huang that demand for its chips remains robust while profits and sales have increased more than 400% and 200%, respectively, would suggest that Nvidia remains in good shape, business cycles often ebb and flow more quickly than the rate at which companies change how they reward shareholders.
Nvidia CEO Jensen Huang speaks during the Nvidia GTC Annual Artificial Intelligence Conference at the SAP Center in San Jose, California, March 18, 2024. (JOSH EDELSON/AFP via Getty Images) (JOSH EDELSON via Getty Images)
Nvidia’s new dividend will see its annual payout to shareholders increase from $395 million in its most recent fiscal year to nearly $1 billion annually. A pittance, some would say, for a company that had free cash flow of almost $15 billion last quarter.
And given Nvidia’s stock performance in recent history — shares are up more than 2,600% in the past five years, versus a 120% gain for the Nasdaq — the company appears to have little trouble encouraging investors to own its shares.
But no level of shareholder return goes unnoticed by investors.
The dividend increase is a notable increase in the amount Nvidia has committed to regularly paying shareholders.
A commitment that is typically only reversed during a company’s most difficult times – indicating that Nvidia is moving further away from contemplating any downsides of the current AI boom.
Click here for the latest stock market news and in-depth analysis, including events moving stocks
Read the latest financial and business news from Yahoo Finance