Nvidia's stock split is not something for investors to ignore: Morning Brief


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Nvidia (NVDA) stock closed at a record high of $1,038 on Thursday.

In less than a month, the closing price will be near 104.

That's because, on the heels of its blockbuster earnings report on Wednesday, the company announced plans to split its shares 10-to-1, meaning existing shareholders will get 10 shares of Nvidia for every 1 share they own, worth 10% of its market value.

On the surface, it is just a division.

The number of Nvidia shares outstanding increases and the price per share decreases; there is no change in the value of the business.

But, as TKR's Sam Roe noted in February after Walmart ( WMT ) announced a 3-for-1 stock split, market history isn't as neutral on this matter.

Bank of America data cited by TKR showed that the average 12-month return for any stock following a split is 25.4%, more than double the average annual return of the overall market.

In other words, companies are more likely to split their stock in good times than in bad times. What's noteworthy is that Nvidia's stock split was accompanied by a 150% increase in its dividend.

And while its CEO Jensen Huang's comments that demand for its chips remains strong, while profit and sales have grown more than 400% and 200%, respectively, suggest Nvidia is in good shape, business cycles often ebb and flow more rapidly than the rate of change in the way companies reward shareholders.

NVIDIA CEO Jensen Huang speaks during the annual Nvidia GTC Artificial Intelligence Conference at SAP Center on March 18, 2024 in San Jose, California. (Photo: Josh Edelson/AFP) (Photo: Josh Edelson/AFP via Getty Images)NVIDIA CEO Jensen Huang speaks during the annual Nvidia GTC Artificial Intelligence Conference at SAP Center on March 18, 2024 in San Jose, California. (Photo: Josh Edelson/AFP) (Photo: Josh Edelson/AFP via Getty Images)

Nvidia CEO Jensen Huang speaks during the annual Nvidia GTC Artificial Intelligence Conference at the SAP Center on March 18, 2024 in San Jose, California. (Josh Edelson/AFP via Getty Images) (Josh Edelson via Getty Images)

Nvidia's new dividend will increase its annual payout to shareholders from $395 million in its most recent fiscal year to nearly $1 billion per year. Some might say that's too little for a company that had free cash flow of nearly $15 billion in its most recent quarter.

And given the performance of Nvidia's stock in recent history — shares are up more than 2,600% over the past five years, while the Nasdaq is up about 120% — it appears the company is having no trouble encouraging investors to buy its stock.

But no level of returns to shareholders goes unnoticed by investors.

A dividend hike is a significant increase in the dividend that Nvidia regularly pays out to shareholders.

It's a commitment that's typically only reversed during a company's most difficult moments — showing that Nvidia is moving away from considering any downsides of the current AI boom.

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