Berkshire Hathaway stock split: Will Warren Buffett change his mind on pricey BRK shares?
Berkshire Hathaway’s (BKR) share price soared to a record high this year – but will the increases persuade the company to split its stock?
The conglomerate run by billionaire investor Warren Buffett enjoyed an impressive start to 2022 despite global uncertainties. The strong performance has made investors question whether the company could follow fellow corporate giants, like Amazon and Tesla, in carrying out a BRK stock split.
Here, we take a look at the company’s stock price history, consider the pros and cons of stock splits, and ask analysts what they expect to happen over the coming months.
What is Berkshire Hathaway?
Berkshire Hathaway is a holding company based in Omaha, Nebraska, US, that’s involved in a wide variety of areas, including insurance, real estate and energy. Its chairman and CEO is Warren Buffett, whose investment success over many decades has led to him being dubbed the ‘Sage of Omaha’.
In his most recent letter to shareholders, Buffett pointed out that the company’s shareholders own many dozens of businesses.
Currently, its largest holdings include a cluster of insurers, technology giant Apple (AAPL), US freight railroad operator BNSF Railway and energy holding company Berkshire Hathaway Energy (BNE).
Berkshire Hathaway: How has it performed?
It’s been a good year for Berkshire Hathaway, with investors attracted by its mix of reliable, trusted companies at a time of global uncertainty. The company has two classes of common stock, designated as Class A and Class B, which are both listed on the New York Stock Exchange (NYSE).
Berkshire’s A-class stock is the original stock. It is the world’s most expensive share, having closed at $447,154 on 19 August, 2022. It reached an all-time high of $539,180 on 28 March, 2022, just over 20% higher than its current level.
The price of the more affordable B-class shares stood at $297.28 as the market closed on 19 August, 2022. The all-time high for this stock was $359.57 on the same date in March.
According to a recent broker note from Greggory Warren, a sector strategist at Morningstar, the shares are “modestly undervalued”. As of 23 August, he had a fair value rating of $537,000 a share on the A-shares and $357 on the B-shares.
What is a stock split?
A stock split is a corporate action that involves the division of each of a company’s shares into multiple shares, which increases the total stock in the company. This has the effect of revaluing the price per share. The company’s overall market capitalisation does not change.
For example, if an investor owns 100 shares valued at $50 each, the total value of their investment is $5,000. If the company splits its stock by 2, the investor will own 200 shares, but each will only be worth $25. Their total investment will still be worth $5,000.
Stock splits: Good or bad news?
There are a number of reasons why a company may look to split its stock, according to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown:
Lower share prices are also useful when it comes to remunerating staff with share options, which is often used to incentivise employees.
Streeter also pointed out a soaring stock price can present other challenges, noting that “in more extreme cases, a high share price can also make mergers and acquisitions more difficult”.
So, is a stock split good news or bad? Well, the overall value of shares won’t change after a stock split, apart from the usual market movements. The only discernible difference, as far as an investor is concerned, according to Streeter, will be that the number of shares they own will have gone up.
Berkshire Hathaway’s stock split history: What has happened?
What is the BRK stock split history? This is a slightly complicated question, as Berkshire Hathaway has two classes of common stock, designated as A-class and B-class. Buffett has never sanctioned the splitting of A-class shares, as he believes this would go against his buy-and-hold investment philosophy.
However, the company introduced B-class shares in 1995 after the share price soared above $30,000, prompting him to face longer-term concerns. In his letter to shareholders that year, Buffett explained the new class was a response to the “threatened creation of unit trusts” that would have marketed themselves as Berkshire lookalikes.
So, when did Berkshire Hathaway stock split?
The B-class shares were split in January 2010. At the time they were around $3,500, which put them out of many investors’ reach.
Berkshire shareholders approved a 50-for-1 stock split as a way to improve accessibility to potential investors. The stock price subsequently went down to around $66.
Berkshire Hathaway stock split: Will it follow others?
A number of corporate giants have split their stock this year. Back in March, Amazon (AMZN) revealed a 20-for-1 stock split in filings to the US Securities and Exchange Commission (SEC). The split, the fourth since the company went public in 1997, saw Amazon shareholders receive 19 additional shares for each one held.
In mid-July, Alphabet (GOOG), the parent company of Google, executed a stock split for the second time in the company’s history. The 20-for-1 split, which comes just over eight years since the previous such action, meant investors received an additional 19 shares for every one they owned.
The most recent addition to this list is Tesla (TSLA). The electric vehicle manufacturer (EV) announced in early August a three-for-one split to make stock ownership more accessible to employees and investors. Each stockholder of record on 17 August will receive two additional shares for each one they hold.
What do the analysts predict?
How likely is another Berkshire Hathaway stock split? Is the company likely to follow the route taken by other major companies and split the stock this year?
It’s not very likely, according to Streeter, who doesn’t expect Buffett to sign off on a stock split any time soon.
Whether a split would ever be on the cards could depend on the company’s overall aims and objectives, according to Streeter.
“Stock splits don’t alter the overall value of the shares an investor owns,” she said. “They’re designed to attract new investors. That does not seem to have been a priority for Berkshire Hathaway.”
FAQs
Will Berkshire Hathaway stock split again
As of 23 August, no plans have been announced for a further stock split. In fact, analysts believe an imminent stock split is unlikely. Analysts point out the shares have been higher in the recent past and that wasn’t enough to prompt a split.
What was the price of BRK b when it split?
Is Berkshire Hathaway a good investment?
Only you can decide whether Berkshire Hathaway is a good investment for you. It’s important to do your own research. Your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio and how comfortable you feel about losing money. And never invest more than you can afford to lose.
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