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This is the Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
Nvidia (NVDA) stock closed at a record high of $1,038 on Thursday.
In less than a month, that closing price will be closer to 104.
That’s because, alongside its blockbuster earnings report on Wednesday, the company announced plans to split its stock 10-for-1, meaning existing shareholders will receive 10 shares of Nvidia for every 1 they own at a price that is 10% of the market value.
On the surface, this is just division.
The number of Nvidia shares outstanding goes up and the per-share price goes down; there is no change in the value of the business.
But, as TKer’s Sam Ro noted back in February after Walmart (WMT) announced its own 3-for-1 stock split, market history isn’t quite so neutral on the matter.
Data from Bank of America cited by TKer showed the average 12-month return for any 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 stock in good times than bad. Notable, given that Nvidia’s stock split also came alongside a 150% increase in its dividend.
And while commentary from its CEO, Jensen Huang, that demand for its chips remains robust while profits and sales rose more than 400% and 200%, respectively, would suggest Nvidia remains in good standing, business cycles often ebb and flow more quickly than the rate at which companies change how they reward shareholders.
Nvidia’s CEO Jensen Huang speaks during the annual Nvidia GTC Artificial Intelligence Conference at SAP Center in San Jose, Calif., on March 18, 2024. (JOSH EDELSON/AFP via Getty Images) (JOSH EDELSON via Getty Images)
Nvidia’s new dividend will see its annual payment to shareholders rise from $395 million in its most recent fiscal year to nearly $1 billion annually. A pittance, some might say, 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 over 2,600% in the last five years against a 120% gain for the Nasdaq — the company appears to have little trouble incentivizing investors to own its stock.
But no level of shareholder return goes unnoticed by investors.
The dividend hike is a notable increase in how much Nvidia has committed to regularly pay out to shareholders.
A commitment that typically only reverses during a company’s most dire moments — indicating Nvidia is moving further away from contemplating any downsides of the present AI boom.
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