Dozens of listed companies moved to make their stocks more affordable by offering stock splits in the hope of attracting hordes of small investors ahead of a tax exemption program on modest investments that will be expanded next year.

The 87 companies that did so between January and July represented a nearly two-fold increase from the same period last year, according to the Tokyo Stock Exchange.

The tax exemption program for small investments, called Nippon Individual Savings Account (NISA), will raise the ceiling on non-tax investments to 3.6 million yen ($24,200) a year, a significant increase from the current amount.

In May, Nippon Telegraph and Telephone Corp. (NTT) announced a 1-to-25 stock split, which drastically reduced the price of a single share from 4,400 yen or so to around 170 yen.

The trading lot for NTT is 100 shares, so the amount required to purchase the stock dropped from 400,000 yen to the 10,000-yen range.

“We want to create an environment that makes it easier to invest and to gain support from a wide range of shareholders,” said Akira Shimada, NTT president as he explained the reason for the stock split at a general shareholders’ meeting in June.

The strategy paid off as the number of individual shareholders soared by 18 percent from the end of March to around 1.08 million as of the end of June.

Denso Corp. joined the stock split bandwagon, announcing in July that it would offer a 1-to-4 split starting in October. The minimum investment amount is projected to drop significantly from the 1-million-yen range.

The TSE once had a varied trading lot, ranging from one to 2,000 shares.

In 2018, it unified the trading lot to 100 shares to make investing easier. But in Japan, the minimum investment amount tends to be higher, compared to major exchanges in the United States and Europe where trading can start from a single share.

For this reason, the TSE last October requested companies to lower the minimum investment amount to “between 50,000 yen and 500,000 yen.” It then published a list of companies that maintained a minimum investment amount of more than 1 million yen.

The attraction of stock splits for companies is having younger investors remaining loyal through thick and thin over the long term.

Sixty percent of shares in listed companies held by individual investors are owned by those aged 60 and older.

This demographic is deemed likely to sell their shares in the future for inheritance.

“We want to lower price of the trading lot to encourage younger generations to buy stocks and hold them for as long as possible,” said an official of a leading securities company.

However, stock split has a disadvantage.

An increase in individual shareholders also means a surge in shareholder management costs, such as creating and sending documents for shareholder meetings.

Although digitalization is progressing, many shareholders still prefer postal delivery.

Given the rising presence of activist shareholders, companies are keen to increase the proportion of individual investors who view them favorably.

“Considering the disadvantage, it’s likely that the move toward stock splits will continue,” said Yuki Seto, a researcher of Daiwa Institute of Research.

SINGLE-SHARE UNITS

Securities companies are now introducing services enabling trading even in amounts less than the standard trading unit.

In April, Rakuten Securities Inc. introduced its “Kabu mini” (share mini), a service that allows investors to trade single-share units for about 500 stocks.

This service mainly features popular stocks among individual investors, such as Toyota Motor Corp., Oriental Land Co. and Japan Airlines Co.

In this service, investors trade off-market with Rakuten Securities. The execution price is set at 0.22 percent above the TSE reference price, and a commission of 11 yen per share is charged for sale transactions.

“In Japan, there are many stocks that are highly priced, above the 1.2 million yen mark,” noted Yuji Kusunoki, president of Rakuten Securities.

He emphasized the significance of the service, which allows transactions with not much capital.

Japanese securities firms such as Nomura Securities Co., SBI Securities Co. and Monex Inc. are also offering services that enable trading from a single share.

PayPay Securities Corp. offers a service that allows investors to start buying shares of major companies in Japan and the United States for as little as 1,000 yen.

However, investing small amounts is not foolproof and can result in losses.

Many companies specify shareholders with more than 100 shares as eligible for shareholder benefits.

Smaller shareholders are also unable to exercise their voting rights to approve or disapprove proposals at shareholders’ meeting.

In some cases, commissions for smaller transactions can be more expensive than buying in 100-share units.

Investors need to carefully assess whether these services for trading stocks in small amounts are really the right choice for them.