Stock splits don't have any fundamental impact on a company, but they can still signal optimism about the future of a business and its prospects for further gains. Yet despite its status on Wall Street as a key player in the investment banking world, Goldman Sachs (NYSE: GS) has never done a stock split. Given that splitting shares has become less common throughout the market, there's a reasonable argument that Goldman might never choose to do one. Yet in part because of its position in the Dow Jones Industrials (DJINDICES: ^DJI), it's possible that with the stock at current levels, the investment banking giant might pull the trigger on a split after all.
Why hasn't Goldman Sachs done a stock split before now?
Because Goldman has never split its shares, we can't look back at its history to see when it tends to consider such decisions. Instead, all we can do is look at situations in which the company hasn't done a split and make whatever inferences we can from that behavior.
It didn't take long for Goldman Sachs to get to a point at which many companies would have considered a stock split. After going public at $53 per share in 1999, Goldman shares moved into triple digits within the first year of trading on the New York Stock Exchange. Yet as it turned out, that move marked the end of a long bull market in stocks that had run throughout most of the 1990s, and the ensuing slide over the next couple of years brought Goldman shares down to more manageable prices.
Investors had another opportunity to get their stock split hopes up during the mid-2000s, when Goldman was profiting handsomely from a roaring economy. Strength in energy prices led to massive levels of activity for Goldman's investment banking business, while the housing boom led to strong interest in loan securitization and other mortgage-related products. Increasing globalization also rewarded Goldman's worldwide scope and expertise, and by late 2007, the stock had risen to around $250 per share. Once again, though, Goldman held off, and that seemed prudent as the stock fell below $80 in late 2008 at the height of the financial crisis.
The 1 reason why Goldman might do a split after all
Goldman Sachs has recovered from the financial crisis and is again enjoying the fruits of a long bull market. Yet there's one key difference between where Goldman is now and where it was the last time that its shares reached their current level: Goldman is now a member of the Dow Jones Industrials, having been granted membership in 2013.
The Dow is a price-weighted average, which means that high-priced stocks have greater influence over the index than lower-priced stocks. Goldman has often been the most expensive stock in the Dow, and although it recently lost that status, the investment bank still has more than twice the weight that it would have if the Dow 30 were equally weighted. When you consider other stocks in the Dow that have connections to the financial industry, Goldman plays a key role in bringing the financial sector's weighting to nearly 20%, which is somewhat high compared to the industry's influence more broadly throughout the economy.
Because of its being a Dow component, Goldman might feel pressure to do a stock split in order to help reduce its own individual influence as well as that of the financial sector more broadly. The companies that manage the Dow Jones Industrial Average likely wouldn't come out directly and comment on Goldman's share price, but if the average starts to diverge from other market benchmarks and become less reflective of the overall economy, then Goldman could feel pressure to make a move.
A stock split could take a while
Investors shouldn't expect an imminent stock split from Goldman Sachs even with these arguments. The investment bank itself hasn't mentioned stock splits in its quarterly conference calls, and shareholders don't seem to have strong feelings about splitting shares.
If a market correction pulls Goldman Sachs' shares down once again as similar events have in the past, then the company might well avoid a split for another period of several years. If the market keeps advancing, however -- and taking Goldman's business higher with it -- then the investment bank might finally be in a position where it has to consider a split for its own good and the good of the Dow.
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