How Apple’s stock split will change hierarchical order in the 124-year-old Dow

Apple Inc. is planning a 4-for-1 stock split and has major implications for the Dow Jones Industrial Average, of which it is a key component.

The iPhone maker announced Thursday that its board approved the stock split. The division will affect registered owners beginning August 24 and Apple AAPL shares,
+ 1.21%,
which closed at $ 384.76 on Thursday, will trade on a split basis on August 31.

Because the Dow DJIA,
is a price-weighted index, the split scheduled for the end of next month means Apple will go from the most influential component of the 30-member blue chip index to perhaps the 15th or 16th most significant member of the index.

Dow price weighting means that the value of the stock indicator is determined by the price changes of its components, rather than the percentage changes. The overall value of the index is calculated by adding the price of the components and dividing it by the so-called Dow divisor, which is currently at 0.14744568353097.

That means every move in a company’s dollars translates to a 6.78-point change in the 124-year benchmark.

The divisor represents stock divisions, so Apple’s 4-for-1 division will alter its own influence on the benchmark and divisor by which the index is calculated. The divisor is determined by S&P Dow Jones Indices, which owns the Dow Indices.

UnitedHealth Group Inc. UNH,
which closed at $ 305.33, it could become the Dow’s most influential member in late August. Home Depot Inc. HD,
+ 0.62%
It is currently the third most expensive stock in the Dow, ending Thursday’s trade at $ 266.31.

Apple has been the largest Dow component, and therefore the most influential, since April 29, according to Dow Jones Market Data.

Other indices, including the S&P 500 SPX index,
and the Nasdaq COMP composite index,
+ 0.42%,
they are weighted by market capitalization, therefore they are affected by the general value of their components.

Apple currently stands out as the largest company by market capitalization, worth $ 1.647 trillion, as of Thursday’s close, according to FactSet data. Microsoft MSFT,
ranks number 2 at $ 1.54 trillion, while Inc AMZN,
+ 0.60%
It is the third most valued US company at $ 1,513 billion.

That’s why large-cap components have had a massive impact on overall market returns, excluding the Dow, as stocks peaked in late March.

For example, the Dow weighted price has gained 41.5% from its March 23 low, while the S&P 500 has returned 45% and the Nasdaq has risen 54% over the same period.

Apple became a member of Dow in March 2015. Back then, AT&T T,
+ 0.03%
It was pulled out in exchange for the Cupertino, California tech giant.

Stock splits in Dow components are not uncommon. Nike Inc. NKE,
announced a 2 for 1 share split in December 2015.

Apple’s stock split announcement came after the company rejected the COVID-19 crisis to report record results on Thursday. The company posted net third-quarter income of $ 11.25 billion, or $ 2.58 per share, up from $ 10.04 billion, or $ 2.18 per share, in the prior-year quarter. Analysts surveyed by FactSet had anticipated $ 2.05 per share.