5 things you need to know about Ap­ple’s stock split

Financial Mirror (Cyprus) - - FRONT PAGE -

Mon­day marked Ap­ple’s first stock split in nine years, a move de­signed to make it more af­ford­able to buy shares of the iPhone and iPad maker that pro­vided a boost even be­fore it was com­pleted. Since the split was an­nounced in late April, Ap­ple’s stock has climbed 25%, cre­at­ing more than $100 bln in share­holder wealth while the Stan­dard & Poor’s 500 edged up just 4%.

Other fac­tors con­trib­uted to the Ap­ple rally: The com­pany raised its quar­terly div­i­dend, com­mit­ted an additional $30 bln to buy­ing back its stock, struck a $3 bln 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.

1. AT­TRACT MORE IN­VESTORS: 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.

Ap­ple ex­e­cuted a 7-for-1 split. That means ev­ery Ap­ple stock­holder re­ceived six additional shares for ev­ery share they owned as of June 2. The dis­tri­bu­tion will in­crease Ap­ple’s out­stand­ing stock from about 861 mln shares to about 6 bln shares.

To ad­just for that swing, Ap­ple’s stock price fell dra­mat­i­cally from Fri­day’s clos­ing price of $645.57 to $92.22. On Mon­day, the shares rose $1.48 to close at $93.70.

2. BRING MORE PRES­TIGE: 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 $171 bln 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 $300. Visa Inc. is the only Dow Jones com­pany with a cur­rent stock price above $200.

3. SPLITS OUT OF FASH­ION: Stock splits once seemed re­flex­ive when­ever a com­pany’s share price neared $100. In re­cent years, though, splits have dwin­dled as com­pa­nies be­came more com­fort­able al­low­ing their stocks to trade for hun­dreds of dol­lars.

Even though the over­all stock mar­ket has been soar­ing, only 57 splits have been com­pleted since 2009 among com­pa­nies in the Stan­dard & Poor’s 500. That com­pares with 375 splits from 1997 to 2000, a pe­riod that co­in­cided with the dot­com boom.

4. DONE IT BE­FORE: Ap­ple has com­pleted 2-for-1 splits be­fore: May 1987, June 2000 and Fe­bru­ary 2005. The stock rose 2% in the first year af­ter the 1987 split and surged 60% in the first year af­ter the 2005 split. The shares plunged 57% in the first year af­ter the 2000 split, which oc­curred amid a steep down­turn in tech­nol­ogy stocks.

5. AD­JUST THE BAR: Be­fore the split, the all-time high for Ap­ple’s stock stood at $705.07. With the split, that peak has now been re­vised to $100.72. Ap­ple went pub­lic in De­cem­ber 1980 at a split-ad­justed 39 cents per share.

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