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With CIBC trading well above $100, expect that we could see some stock splits as soon as the banks’ fourth-quarter earnings season, which begins in late November.Getty Images/iStockphoto

Given current prices of Bank of Montreal, Canadian Imperial Bank of Commerce and Royal Bank of Canada, when would you expect them to split?

In the past, banks have typically split their shares when their prices have approached $100. Toronto-Dominion Bank – the last of the Big Five to split – was trading at about $95 when it announced a two-for-one split in December, 2013. Royal Bank's shares fetched about $98 when it announced its most recent split, in March, 2006.

Now, with CIBC trading well above $100 and BMO and Royal both cracking that milestone this week, I expect that we could see some stock splits as soon as the banks' fourth-quarter earnings season, which begins in late November.

It's important to understand that stock splits, in and of themselves, don't add any economic value. After a two-for-one split, you'll own twice as many shares, but each share will be worth half as much as before the split.

So what's the point? Basically, companies want to improve the liquidity of their shares and maintain buying interest among retail investors, who might balk if the share price becomes too high. The rationale may, at least in part, be a holdover from the days when investors usually had to buy shares in multiples of 100 – called board lots.

Nowadays, thanks to modern trading systems, investors can easily buy fewer than 100 shares. That may explain why, although stock splits remain popular with some companies, others – such as Amazon.com, Priceline and Alphabet – have let their share prices climb above $1,000 (U.S.). At least one Canadian bank doesn't seem to be in a hurry to announce a split. In response to a question at CIBC's annual meeting in April, chief executive Victor Dodig said: "I don't believe that stock splits create value. We are absolutely focused on what creates value for our shareholders by really serving our clients, by embracing technology, by building a really strong bank. So, we have no stock splits that are planned." Bank of Montreal and Royal Bank both declined to comment on Friday.

Even though a stock split won't increase your net worth, research indicates that it can send an important signal about a company's strength.

In a 1996 study, David Ikenberry of Rice University examined 1,275 U.S. companies that split their shares between 1975 and 1990, and compared them with companies that did not split. Result: The splitters outperformed the non-splitters by 8 percentage points after one year and by 16 percentage points after three years.

It's unlikely that the split itself caused the outperformance. Rather, the splitters were performing well already – as evidenced by their high share prices – and that momentum may have simply continued after the split.

I read your recent article (tgam.ca/2xuVEXi) about Canadian Apartment Properties REIT. Are you not concerned about the expanded rent controls recently introduced by the Ontario government?

No. Prior to the new legislation being passed in May, apartments in Ontario that were built on or after Nov. 1, 1991, were exempt from annual rent-increase guidelines. Now, those buildings are subject to the same maximum annual increase (for 2017, the rate is 1.5 per cent) as older apartments.

However, CAP REIT (CAR.UN) has said the new law will have no impact on its projected rental revenue. There are a few reasons for this.

First, of CAP REIT's 22,136 rental suites in Ontario (as of April, when the bill was introduced), just 812 – or 3.7 per cent – were built after 1991. Second, CAP REIT said it has been adhering to Ontario's rental-increase guidelines for all of its properties, even those constructed after 1991. Third, landlords can still apply for above-guideline increases in certain cases, such as when they make major repairs, renovations or additions to a property.

Finally, it's important to note that rent controls don't apply when an apartment unit turns over. In those situations, the landlord can charge the incoming tenant whatever rent the market will bear.

As I pointed out in my column, this is one reason that CAP REIT's revenue per rental unit has been rising at a faster rate than the rent-increase guideline.

CAP REIT is one of 22 stocks in my Yield Hog Dividend Growth Portfolio. Globe Unlimited subscribers can view the complete portfolio at tgam.ca/dividendportfolio.

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