Why Apple’s stock split really shocked shareholders

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Technology giant Apple (NASDAQ: AAPL) broke all the rules of stock market investing. Its huge comebacks in 2019 and so far in 2020 go against those who have said the iPhone maker’s best days are behind. Its nearly $ 1.8 trillion market cap seems too big for further gains, but Apple continues to break the law of big numbers to push ever higher.

Now Apple has flown to the convention again, this time with its stock. At a time when stock splits have all but disappeared, the Cupertino-based tech giant has said it will divide its shares 4 to 1. Although the move would not have seemed out of place just a few years ago, it’s now sparking a lot of talk about whether more companies will follow with stock splits.

Barely an unprecedented move

Apple is no stranger to stock splits. He has done this four times, as you can see below:

Effective date of split Division report 100 actions in 1986 would now be:
June 16, 1987 2 for 1 200 shares
June 21, 2000 2 for 1 400 shares
February 28, 2005 2 for 1 800 shares
June 9, 2014 7 for 1 5600 shares
August 31, 2020 * 4 for 1 22400 times

Data source: Apple Investor Relations. * The last stock split is still pending as of the posting date.

When choosing to split its stock, Apple generally followed the rules that prevailed in the wider stock market at the time. Apple’s first stock split in 1987 came after the stock price hit around $ 80 per share. A 2-to-1 split gave Apple enough leeway to avoid triple-digit stock prices. When Apple stock next approached the $ 100 mark in 2000, another split pushed the stock price down. Likewise, Apple traded in the low $ 80 in 2005 during its third 2-for-1 stock split.

A change in split strategy

By then, however, companies had started to change their attitude towards stock splits. Many companies no longer found it necessary to keep their stock prices relatively low. As a result, when Apple once again approached $ 100 a share, the tech giant did nothing. The price of the shares continued to rise more and more; it was briefly interrupted by the financial crisis, but eventually rose to $ 700 per share. After 2005, Apple took a new approach. Even though the stock climbed into triple digits in 2007, the company didn’t use its previous playbook and instead allowed its stocks to continue to appreciate. Despite dramatic volatility before and during the financial crisis of 2008 and 2009, Apple quickly rebounded and climbed to $ 700 per share in 2014.

At this point, Apple broke with the new tradition and decided to divide its share again. The company mapped out the usual explanation of making stocks more readily available to investors. Yet in this case, the split was likely to prove essential for Apple to be part of the Dow Jones Industrial Average (INDICES DJ: ^ DJI). The price-weighted average would have struggled to accept Apple’s dominant influence had its stock price remained at $ 700 or more. After an unusual 7-to-1 split, stocks in the bottom three digits were quite reasonable to factor into the Dow’s calculations.

Image source: Apple.

Another game-changing movement

Six years later, Apple has defied convention again. Even as tech rivals push headlong into four-digit territory, the mobile device giant has reverted to its usual mode of operation, choosing a 4-to-1 stock split that is expected to bring its price back to the market. ‘share at around $ 100 per share. Once again, Apple argues that it wants its stocks to be more accessible to a broader base of investors – even though innovations like odd lot trading and split stocks have made stock prices much less. important than it was earlier in Apple’s history.

What is surprising is that there was no apparent ulterior motive for the split. Of course, Apple has by far the highest share price in the Dow Jones, so it’s 10% weighting in the average. However, the company’s huge market capitalization gives it an equally important weight in other indices. in the S&P 500, for example, Apple’s weight is approaching 6% – and the S&P is a much broader benchmark than the Dow Jones.

What Apple’s stock split really means for investors

Stock splits don’t make any real difference in the value of the business. After the split, shareholders will own four times as many shares, with a share price of about a quarter of what it was before the split.

However, investors see this news as a sign of confidence that Apple can continue to see its shares rise. For a company as big as Apple has become, it’s a pleasant surprise – and it’s one that could propel Apple’s share price even higher even after the split at the end of August. .



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