Every now and then, as an investor, you will come across the news of a stock split. Stock splits are a common way for publicly-traded companies to increase or decrease the number of shares in the stock market without changing a stock’s value or market capitalization. Companies do this to improve liquidity and ultimately benefit shareholders in the long run.
Stocks boasting significantly high share prices, track records for long-term compounding, and share prices in four digits are typically due for stock splits. Today, I will discuss two TSX stocks that have all the right ingredients pointing to a stock split happening soon.
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Canadian Pacific Kansas City
Canadian Pacific Kansas City Ltd. (TSX:CP) is a Canadian stock that has already gone through stock splits in the past. With the most recent in May 2021, it has seen a total of three splits. This shows how the company’s management already has a track record of using splits to make share prices more accessible when they get too high to hamper day-to-day liquidity.
CPKC boasts one of the most extensive railway networks in North America. Its network is the only single-line railway that connects Canada, the US, and Mexico. As of this writing, CP stock trades for $11.74 per share. While that might not be too uncomfortably high, continued growth for the company might bring its share prices up to that point again.
The management at the railway might go for another stock split to keep shares accessible to a wider pool of retail investors.
Constellation Software
Constellation Software Ltd. (TSX:CSU) is a TSX tech stock that has never gone through a stock split, but seems primed to do so. Constellation isn’t a standard tech stock. Rather, it operates more like a venture capital firm that invests in tech companies and makes them better under its belt. CSU acquires vertical market software businesses that are already generating revenue, brings them under its umbrella, and drives more growth for the underlying business. In turn, it grows value for its shareholders.
Despite never having gone through one, I think it is ready for a split. As of this writing, it trades for $2,527.08. Considering that it is in the four-digit share price range, it is not as accessible to retail investors. Even with the availability of fractional shares, that seems like too high a price tag for many.
I think that there might be a stock split on the horizon. At least, that is what investors who want to get in on the action with this stock would prefer. It remains to be seen whether the company’s management will enact a stock split.
Foolish takeaway
If this will be your first time investing in stocks after splits, it’s important to remember that they do not change the intrinsic value of the underlying business. The impact is really on the accessibility and perception of the stocks.
With share prices as high as they are, it might be a matter of time till we see CSU stock and CP stock enact splits to make shares more accessible to retail investors and invite more shareholders to the registry without making changes to the business.
