Apple’s stock split may not be good for the Dow

(Reuters) – Apple (AAPL.O) announced a stock split on Thursday and may not bode well for future earnings on the Dow Jones Industrial Average .DJI.

FILE PHOTO: The Apple Inc logo is seen hanging at the entrance to the Apple Store on 5th Avenue in Manhattan, New York, USA, October 16, 2019. REUTERS / Mike Segar / File Photo

The iPhone maker made the surprise announcement in its quarterly report, saying it will split its shares four-by-one when operations begin on August 31, Apple’s first stock split since 2014.

Stock divisions have become rare on Wall Street in recent years, with just three S&P 500 members announcing divisions in 2020, compared to an average of 10 a year for the past decade, according to S&P Dow Jones indices. .

Splitting their shares is one way for companies to make buying individual shares less expensive, potentially attracting retail investors who do small transactions.

Amazon shares cost $ 3,051 each, while one Alphabet share sells for $ 1,538 and Chipotle Mexican Grill shares cost $ 1,148.

Given that Apple shares rose 6% in extended trading to $ 408 following its strong quarterly report, the split means that shareholders will receive three shares for each one they own. Investors will be able to buy shares for more than $ 100 each.

Apple said it hoped to make the shares “more accessible to a broader investor base.”

However, brokerage firms increasingly allow customers to buy shares of stock, making the benefit of stock divisions less clear than in the past.

“Stock divisions have become too few because people are no longer concerned about $ 500 or $ 100 stocks, because investors can now buy fractions of stocks,” said Howard Silverblatt, senior index analyst at S&P. Dow Jones Indices.

Splitting Apple’s shares means the Silicon Valley company will have less influence within the Dow, which is weighted by the share price of its 30 components.

Apple was added to the Dow in 2015, and the 230% rise in Apple shares since then has been a major factor driving earnings in the Dow, widely seen as a reflection of the U.S. stock market.

Apple currently represents roughly 10% of the Dow, and after the stock split, it will account for just a quarter of that, ranking it as the 18th most weighted share in the Dow. Possible future gains and losses on Apple stock will have less influence on the Dow’s performance.

Apple’s stock split won’t affect its weight within the S&P 500 .SPX, which is based on market capitalization.

GRAPH: Where did all the stock divisions go? – here

Report by Noel Randewich; editing by Megan Davies and Tom Brown

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