Dec 10 at 17:11
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(This story was published by The Wall Street Journal Online's MoneyBeat
blog at http://blogs.wsj.com/moneybeat/)
By Paul Vigna
Stocks splits may be mostly dead, but mostly dead is partially alive.
MasterCard announced a 10-for-1 stock split after the closing bell on
Tuesday, as well as a dividend boost and a $3.5 billion buyback program.
Shares were up modestly in late trading on the news.
It's not hard to see why the company wanted to split the shares: At
Tuesday's closing price of $778.88, shares were getting into that heady range
in which few companies tread. The stock, in fact, has been on a nearly vertical
ascent since its 2006 IPO, and is up roughly 60% this year alone.
MasterCard is bucking the trend with this move. Only 11 companies in the
S&P 500 have split their shares this year, the fourth lowest number on record.
MasterCard makes that 12, but it's not going to alter the general trend.
Shares were up in late trading, rising 2.3% to $781.00. The split is
effective on Jan. 9. Based on its current share price, the $781 stock will be
worth only $ 78.10 after the split; of course, investors will have nine other
new shares to go along with the one. The company's shares outstanding will
increase from 120 million to 1.2 billion after the split.
There's no real science behind stock splits; companies do it to make their
stock more attractive to investors. So if the board feels the stock price is
keeping investors away, they split. There are a few reasons behind the decline
in their popularity, as our Jason Zweig wrote. Then again, there are only a
handful of companies that have shares trading above the $500 mark anyway:
there are only six stocks over $500, and two above $1,000.
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