What the Apple Stock Split Means
31 July 2020 - 10:17AM
Dow Jones News
By Michael Wursthorn
Apple Inc. said Thursday that it will enact a 4-for-1 stock
split, essentially giving investors three more shares for every one
they own.
Once nearly a given for most firms when their shares topped $100
or so, stock splits by companies in the S&P 500 faded from
prominence after the dot-com bust in 2000. They are even more rare
among companies in the Dow Jones Industrial Average. Apple is a
component of both.
One big investor applauded the move and predicted Apple shares
will extend their 31% rally so far this year. The split helps "set
the stage for a strong calendar year finish for Apple," said Daniel
Morgan, a senior portfolio manager at Synovus Trust Co.
The news appeared well received: Apple shares rose nearly 6% in
after-hours trading, also buoyed by an upbeat earnings report
Here's a rundown of what it means for your portfolio.
What does this mean for investors?
Each Apple shareholder at the close of business on Aug. 24 will
receive three additional shares for every share they hold. Trading
will begin on a split-adjusted basis on Aug. 31.
Stock splits help entice investors who might be put off by a
high share price. But that might be less relevant now than the last
time Apple did this. Brokerages such as Charles Schwab Corp. give
clients the option of buying a fraction of a share for as little as
$5, opening up a range of pricey stocks to mom-and-pop
investors.
Apple shares traded for more than $400 each in Thursday's
after-hours session. A split at that level would knock shares down
to about $100.
What does this mean for the company?
Other than a lower stock price, mostly nothing. Splits don't
change anything fundamentally about a company or its valuation,
although they have a history of generating a short-term pop in a
company's stock price. Apple is the most valuable U.S. company,
followed by Microsoft Corp. and Amazon.com Inc.
What does this mean for the stock market?
In most cases, stock splits have no impact on the broader stock
market, especially within the market-cap weighted S&P 500. But
the Dow Jones Industrial Average is a different story. The stock
split won't shave any points from the blue-chip index, but it will
make the tech company less influential in it.
The Dow is a price-weighted index, meaning higher-priced stocks
contribute more points to the index's daily moves. Right now, Apple
shares trade higher than the 29 other stocks in the Dow, making its
moves the most seismic. The stock split will move it to the middle
of the pack, leaving UnitedHealth Group Inc., at $305.23 a share,
as the most influential.
The stock split may also widen the Dow's performance
differential with the S&P 500 because the highflying tech
sector's weighting in the blue-chip index will decline. The S&P
is already outperforming the Dow this year by the widest margin in
decades, with a gain of 0.5% in 2020 versus a decline of 7.8% for
the Dow.
How does the split set Apple apart from other companies?
The split later this summer will mark the fifth time Apple split
its shares, highlighting its continued focus on courting individual
investors. It also bucks the trend at other big companies that have
rallied over the years and trade for hundreds, or thousands, of
dollars a share.
Amazon, for instance, hasn't split its stock in more than two
decades, leaving its shares to climb to $3,051.88 apiece.
Alphabet's two classes of shares trade for as much as $1,538.37
apiece.
Even bigger is Berkshire Hathaway. Its Class A shares go for
$291,362 each. Another class it created to help encourage more
retail-investor participation in 1996 trades for $194.30 and is in
the S&P 500. Berkshire split shares of that second class in
2010.
Among the stocks in the S&P 500, Apple had the 28th-highest
share price as of Thursday's close. The most expensive stock in the
index is home builder NVR Inc., whose shares are approaching
$4,000.
How many times has Apple split its stock?
This will be the fifth time. Apple previously split its stock on
a 7-for-1 basis on June 9, 2014, and split on a 2-for-1 basis on
February 28, 2005, June 21, 2000, and June 16, 1987.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
July 30, 2020 20:02 ET (00:02 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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