The insurance industry doesn't have the following that cutting-edge technology companies or highly visible consumer products giants have, but it has produced strong long-term returns for shareholders. Dow component Travelers (NYSE: TRV) has made insurance a goldmine, producing nearly 12% average annual returns for long-term investors over the past 30 years when you trace its history back through the St. Paul Company that acquired Travelers in 2004. Yet even though its recent performance has also been strong, Travelers investors haven't seen a stock split since St. Paul's most recent move in 1998. Given the stock's recent gains, some believe that 2017 might be the year that the company changes its mind and splits its shares. Let's look more closely at Travelers to see whether the insurance giant is likely to do a split this year.
Image source: Travelers.
Travelers stock splits in the past
Here are the dates and split ratios for the stock splits that Travelers has done in the past:
Date of Split
June 6, 1994
2 for 1
May 12, 1998
2 for 1
Data source: Travelers investor relations. Note: Prior to 2004, Travelers refers to legacy St. Paul Company stock prices.
As you can see, Travelers hasn't done any stock splits since its 2004 merger with St. Paul, and even St. Paul hadn't done many number of moves prior to that. However, with both of its splits having come in the 1990s, it's easy to go back and see what motivated the company to make its split decisions back then.
What the two past stock splits have in common is the general range at which its stock traded immediately prior to the split. By 1994, the stock had climbed toward the $100 per share level, and that motivated the company to follow the standard practice of doing a 2-for-1 stock split. That immediately took the stock into the $40s.
From there, the stock went through a cycle of rapid appreciation, again rising to the mid-$90s by early 1998. St. Paul responded with another 2-for-1 split. Moreover, immediately following the split, less favorable conditions for the insurance industry helped send St. Paul shares downward as well. That removed any pressure on the pricing front for splits for a long time.
Why didn't Travelers split in 2014?
After a long period of stagnant share prices, Travelers started gaining ground slowly but surely after its St. Paul merger. Yet it took until 2014 before the stock approached the $100-per-share mark. At that point, many investors might have anticipated that the Dow component would move forward with a split.
Yet by then, the general attitude toward stock splits had changed. Many companies, including several in the Dow Jones Industrials, not only chose not to split their shares when their stock price reached triple digits but also seemed to embrace high share prices. Pressure from retail investors to split shares diminished greatly because of the availability of discount brokers and purchases in single-share increments. Gone was the benefit of buying stock in 100-share increments, which had motivated many stock splits in the past.
Travelers also hasn't made comments about a potential stock split one way or the other. A quick search of its conference calls following quarterly earnings announcements shows no discussion or questions about a potential stock split.
Will Travelers split its shares in 2017?
Perhaps the clearest sign of Travelers' intentions is visible in the way it has handled its share count in recent years. The insurer has made a practice of buying back stock in large volumes, and that has had the net effect of dramatically reducing its share count. Since 2008, Travelers has cut its outstanding shares by more than half, doubling its book value in the process. That would suggest a strategy that would frown on doubling share counts by doing a stock split.
Given the way that Travelers has handled its capital structure and changing attitudes toward splitting shares across the stock market, it seems unlikely that Travelers will do a stock split in 2017. Even though its share price is high enough to justify one, Travelers is more likely to keep following its buyback philosophy and deliver growing per-share financial results to an ever-shrinking investor base this year and in the future.
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