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

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.