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

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Apple Inc. is forecasting a 4-to-1 stock split and this has significant implications for the Dow Jones Industrial Average, of which it is a key component.
The iPhone maker said Thursday that its board of directors has approved the stock split. The split, intended to make Apple “more accessible to a broader base of investors,” will impact owners of record from August 24 and shares of Apple, AAPL,
+ 1,21%,
which closed at $ 384.76 on Thursday, will trade on a split-adjusted basis on August 31.

Because the Dow DJIA,
-0,85%
is a price-weighted index, the split expected at the end of next month means Apple will move from the most influential component of the blue chip index at 30 members to perhaps the 15th or 16th most important index.
The Dow’s price weighting means that the value of the stock gauge is determined by the price changes of its components, rather than the percentage changes. The overall index value is calculated by adding the price of the components together and dividing by the so-called Dow divisor, which currently stands at 0.14744568353097.

This means that every movement of a company’s dollar translates into a 6.78 point change from the 124-year-old benchmark.
The divisor explains stock splits, so Apple’s 4-to-1 division will change its own influence on the benchmark and the divisor by which the index is calculated. The divisor is determined by the S&P Dow Jones indices, which owns the Dow indices.
UnitedHealth Group Inc. UNH,
-0,47%,
which closed at $ 305.23, could become the most influential member of the Dow at the end of August. Home Depot Inc. HD,
+ 0,62%
is currently the third most expensive stock in the Dow Jones, ending Thursday at $ 266.31.
Apple has been the largest and therefore most influential Dow Jones component since April 29, according to Dow Jones Market Data.
Other indices, including the S&P 500 SPX index,
-0,37%
et le Nasdaq Composite Index COMP,
+ 0,42%,
are weighted according to market capitalization, so they are influenced by the overall value of their components.
Apple is currently the largest company by market capitalization, with a value of $ 1.647 trillion, as of Thursday’s close, according to FactSet data. Microsoft MSFT,
-0,07%
ranks # 2 with $ 1.54 trillion, while Amazon.com Inc AMZN,
+ 0,60%
is the third most valued US company with $ 1.513 trillion.
It is for this reason that large cap constituents have had a disproportionate impact on returns for the entire market, excluding the Dow Jones, since stocks hit their recent low in late March.
For example, the price-weighted Dow has gained 41.5% from its March 23 low, while the S&P 500 has returned 45% and the Nasdaq has climbed 54% over the same period.
Apple joined the Dow in March 2015. At the time, AT&T T,
+ 0,03%
was pulled in exchange from the Cupertino, California-based tech giant.
Stock splits in Dow components are not uncommon. Nike Inc. NKE,
-0,15%
announced a 2-for-1 stock split in December 2015.
The announcement of Apple’s stock split came after the company swept aside the COVID-19 crisis to release record results on Thursday. The company posted third-quarter net income of $ 11.25 billion, or $ 2.58 per share, compared with $ 10.04 billion, or $ 2.18 per share, in the prior year quarter. Analysts polled by FactSet were forecasting $ 2.05 a share.

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