NAGOYA, Japan -- Toyota Motor is embarking on its first stock split in three decades in an apparent bid to drive up the number of loyal retail investors among its rank of shareholders.
During Monday's trading in Tokyo, Toyota hit a new record high of 10,350 yen, rising 2% from the previous close. The stock had been weighted down by production cuts from the coronavirus epidemic in Southeast Asia.
However, "the sense of expectation concerning a recovery in output has taken precedence, and the upcoming stock split as well as the additional stockholder rewards have once again received attention," said Koji Endo, an analyst at SBI Securities.
Toyota said Monday it has wrapped up its roughly 250 billion yen ($2.25 billion) stock buyback program that was announced in May.
Starting Wednesday, the automaker will split each share into five equal parts, quintupling the number of shares. That same day, the stock's tick size will decrease to 0.5 yen from 1 yen.
The purpose of the stock split is to "create an environment in which it is easier to invest in our common stock by reducing the minimum investment amount and increasing the liquidity of the stock," Toyota said in a release.
To trade on the Tokyo Stock Exchange, an investor needs to buy individual lots of at least 100 shares. For Toyota, that translates to a minimum investment of more than 1 million yen before the split, which will fall to just over 200,000 yen afterwards.
The TSE recommends a minimum investment amount of at least 50,000 yen, but less than 500,000 yen. With the new minimum, Toyota is apparently falling in line with that guidance.
The company has not stated its goals for its stockholder makeup, nor has it specified its future capitalization strategy. What is known is that retail investors make up a minor slice of shareholders.
Although Toyota leads Japanese corporations in terms of market capitalization, it was in 15th place when it came to the number of stockholders, which stood at 430,000 at the end of March, according to stock filings. In comparison, first place SoftBank had 850,000 stockholders and Nissan Motor had 560,000.
Furthermore, retail investors made up less than 12% of all Toyota stockholders, falling below the average of 17% among Japanese listed companies.
Meanwhile, financial groups make up 39% of Toyota shareholders, while international investors constitute another 24%. Other companies, including those having cross-shareholding relationships with Toyota, round out the last quarter of investors.
Retail investors are known to be interested in shareholder incentives and dividend yields. But many institutional investors are critical of shareholder incentives, and Toyota's projected dividend yield is 2.1%.
Although the carmaker's divided yield is not particularly low, it trails the likes of Japan Post and Japan Tobacco, whose yields fall in the 5% to 6% range.
Another factor for Toyota's dearth of retail investors is the 33% jump in the company's share price during the previous fiscal year ended March. Because retail investors tend to cash out during bull runs, the number of total investors shrank by 5% over a year.
To cultivate long-term investors, Toyota issued what it called Model AA Class shares in 2015. Holders of the instrument were virtually guaranteed their original investment. The annual dividend yield grew incrementally from 0.5% in the initial year to 2.5% in the fifth year.
The Model AA Class shares drew more than 90,000 retail and other investors. But international investors derided the instrument as a willful scheme to create loyal investors. Toyota ultimately repurchased and cancelled all Model AA Class shares by April.
Now that the company has opted for a stock split, the effectiveness of this decision remains the big question.
"One-time transactions between 300,000 yen and 400,000 yen are the heaviest among retail investors," said Tomoichiro Kubota, senior strategist at Matsui Securities. "Retail investors will more easily engage with Toyota stock after the split."
"For the 602 stocks that have split since 2006, the number of retail investors increased by roughly 10% in the year after the announcements, and by 20% after two years," said Kenji Abe, chief strategist at Daiwa Securities.
Companies that split their stock see their shares outperform the Topix index by an average of 24% after three years from the end of the month the announcement was made, Abe added. Because Topix lists a large number of startups that are prone to sharp price swings, the figure is no more than a rough guide.
If Daiwa's estimates play out for Toyota, retail investors in the company would increase dramatically in two years. On the macroeconomics front, investors are growing defensive over changes to monetary easing programs in major economies. In that environment, the number of retail investors is all but guaranteed to climb, especially given their interest in the supply and demand of shares from Japanese icons.