5 things to know about Apple's stock split
By Michael Liedtke, AP
June 10, 2014, 12:00 am TWN
SAN FRANCISCO, California--Apple's resurgent stock may have as much to do with financial engineering as the company's technological wizardry.
In late April, the iPhone and iPad maker announced plans to split its stock for the first time in nine years. Since then, Apple's stock has climbed 23 percent, creating more than US$100 billion in shareholder wealth while the Standard & Poor's 500 edged up just 4 percent.
Other factors contributed to the Apple rally: The company raised its quarterly dividend, committed an additional US$30 billion to buying back its stock, struck a US$3 billion deal to buy headphone maker Beats Electronics and previewed its latest software for iPhones, iPads and Mac computers.
But the stock split helped renew investor interest in Apple Inc., already the world's most valuable company.
The reason has more to do with psychology than logic. Splits lower a stock's trading price by substantially increasing the number of outstanding shares. Even though the company's market value remains the same, the prospect of a lower price per share often excites investors who previously shied away from a stock because it looked too expensive.
Companies executing splits hope to attract more buyers by making the stock appear more affordable. The concept will be tested Monday when Apple's stock begins trading for the first time since the split's completion.
Apple is executing a 7-for-1 split. That means every Apple stockholder gets six additional shares for every share they owned as of June 2. The distribution will increase Apple's outstanding stock from about 861 million shares to about 6 billion shares.
To adjust for that swing, Apple's stock price will likely fall from Friday's closing price of US$645.57 to the US$90 to US$95 range.
Although it's unclear if this was Apple's intent, the lower price could clear the way for the company to be included among the 30 stocks in the Dow Jones industrial average. The closely watched benchmark is supposed to mirror key sectors of the economy, a role that seems perfectly suited for Apple given the popularity of the company's products and its US$171 billion in annual revenue.
But Apple's high stock price made it impractical to include the company in the Dow. That's because the Dow's value is calculated in a way that gives greater weight to the companies with the highest stock prices. The method has discouraged the Dow Jones selection committee from picking companies with stock prices trading at more than US$300. Visa Inc. is the only Dow Jones company with a current stock price above US$200.