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Nvidia (NVDA) shares closed at an all-time high of $1,038 on Thursday.
In less than a month, that closing price will be closer to 104.
That’s because, in addition to Wednesday’s blockbuster earnings report, the company announced plans to split its shares 10-for-1, meaning existing shareholders will receive 10 shares of Nvidia for every 1 they own at a price that adds 10% of the market value. .
On the surface, this is just divisive.
The number of Nvidia shares outstanding increases and the price per share decreases; there is no change in the value of the company.
But as TKer’s Sam Ro noted in February after Walmart (WMT) announced its own 3-for-1 stock split, market history isn’t so neutral on this point.
Bank of America data cited by TKer shows that the average 12-month return for each stock after a 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, since Nvidia’s stock split also came with a 150% dividend increase.
And while CEO Jensen Huang’s comments that demand for its chips remains robust while profits and sales rose more than 400% and 200% respectively would indicate that Nvidia remains in good standing, business cycles often faster than in recent years. speed at which companies change the way they reward shareholders.
Nvidia’s new dividend will see its annual payout to shareholders rise from $395 million in the most recent fiscal year to nearly $1 billion annually. A pittance, some might say, for a company that had nearly $15 billion in free cash flow in its most recent quarter.
And given the performance of Nvidia’s stock in recent history (its shares are up more than 2,600% over the past five years, versus a 120% gain for the Nasdaq), the company appears to have little trouble encouraging investors to buy its shares. to own.
But no level of shareholder return goes unnoticed by investors.
The dividend increase is a notable increase in the amount Nvidia has promised to regularly pay out to shareholders.
A commitment that is typically only reversed during a company’s most trying moments – indicating Nvidia’s drift away from considering the possible downsides of the current AI boom.
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