Home Mutual Funds Chipotle Announced a Massive Stock Split—Here’s Why

Chipotle Announced a Massive Stock Split—Here’s Why

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Key Takeaways

  • Chipotle said earlier this week its board approved a proposal for a 50-for-1 stock split.
  • If approved by shareholders at the company’s annual meeting in June, shareholders will gain 49 additional shares for each one they held previously.
  • The split would lower Chipotle’s stock price and could make it more accessible to its employees and a wider range of investors.

Chipotle (CMG) announced earlier this week that its board approved a proposal for a 50-for-1 stock split, in a move that would lower Chipotle’s stock price and could make it more accessible to its employees and a wider range of investors.

If approved by shareholders at the company’s annual meeting on June 6, Chipotle shareholders will gain 49 additional shares for each share they own as of the record date of June 18 that will be distributed after market close on June 25.

Stock splits raise the number of shares on the market without changing the company’s valuation or market capitalization, and are most often performed at a ratio of 2-for-1 or 3-for-1, meaning a shareholder would get two or three shares for each one they held previously.

Shares of Chipotle gained following the news of the proposed split, and ended the week nearly 4% higher Friday from Monday’s close, before the split was announced late Tuesday. Based on Friday’s closing price of $2,882.04, Chipotle would trade at an estimated $57.64 per share after a 50-for-1 split at that price.

A company may pursue a stock split for a variety of reasons, including to make its stock price more easily available to some investors and increase liquidity.

“We believe this will make our stock more accessible to employees as well as a broader range of investors,” Chipotle Chief Financial and Administrative Officer Jack Hartung said in a press release.

Another reason some companies may undergo a stock split is because it could raise their chances of being added to an index like the Dow Jones Industrial Average, which as a price-weighted index, tends to shy away from adding high-priced stocks, because movements in that stock’s price could have an outsized impact on the index. As of Friday’s close, the highest-priced stocks in the Dow were UnitedHealth Group (UNH) at $490.07, and Microsoft (MSFT) at $428.74.

Being part of indexes like the Dow or S&P 500 can benefit a stock’s value by boosting its name recognition among investors or leading to its inclusion in exchange-traded funds (ETFs) and index funds that track the index, in turn raising demand for the stock and lifting its price.

For example, e-commerce giant Amazon (AMZN) joined the Dow earlier this year after undergoing a 20-for-1 stock split in June 2022. Amazon shares were trading well above $2,000 before the split took place and ended the first day following the split at $124.80. As of Friday’s close, Amazon shares were worth $178.87.

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