- Posted July 8, 2014 by
What Apple's stock split means for you?!
By Irakli Berdzenadze
In April, 2014 year Apple announced it would undergo a 7-to-1 stock split that would bring its share price down from the stratosphere. But that’s not all that’s changed. On Monday, after the price dropped 85% in the split, Apple shares are not only more accessible than before — they’re also more attractive. Leading up to the announcement on April 23, Apple shares were down 6.5% on the year. Since then, the stock has rallied to heights not seen since 2012. Why? Part of it may be the stock split, which makes shares potentially look more attractive to retail investors. It also opens up a chance for Apple to be added to the prestigious Dow Jones Industrial Average, something that would have been impossible at prices exceeding $600 per share. I know that many investors had big hope that price will reach to 1000 $, but this hope stayed only hope after April. It was very hard to understand by investor's view, when you invested your huge capital to buy their stocks but in one day you see that company decides that they changed their investment strategy and oriented on stock split. Apple shares are up over 23% since the split was announced. While the split would have reduced the share price to about $75, instead the stock sits at about $92. If you’re eyeing a split-adjusted record high in the stock that keeps going up, the new one to watch for is $100.73. Apple shares last reached that peak in September 2012.
But to understand correctly their decision it's better to understand what is stock split. Stock split is a process when a company increases the number of shares outstanding while lowering the price accordingly. Splits don’t change anything fundamentally about a company or its valuation, but they tend to make a company’s stock more attractive to mom-and-pop investors. Apple shares rallied 23% from late April, when the company announced the split in conjunction with a strong quarterly report, through Friday. A poll conducted by our colleagues at MarketWatch found 50% of respondents said they would buy Apple shares after the split. Some 31% said they already owned the stock and 19% said they wouldn’t buy it. The survey received more than 20,000 responses.
But here is another things you need to know about apple stock split:
1) WHO DOES THE STOCK SPLIT IMPACT? Investors who owned Apple shares as of June 2 qualify for the stock split, meaning they get six additional shares for every share held. So if an investor held one Apple share, that person would now hold a total of seven shares. Apple also previously paid a dividend of $3.29, which now translates into a new quarterly dividend of $0.47 per share.
2) WHY IS APPLE DOING THIS? The iPhone and iPad maker says it is trying to attract a wider audience. “We’re taking this action to make Apple stock more accessible to a larger number of investors,” Apple CEO Tim Cook said in April. But the comment also marked an about-face from two years earlier.
3) WILL APPLE GET ADDED TO THE DOW? It’s unclear at the moment, although a smaller stock price certainly makes Apple a more attractive candidate to get added to blue-chip Dow. Apple, the biggest U.S. company by market capitalization, has never been part of the historic 30-stock index, a factor that many observers attributed to its high stock price. The Dow is a price-weighted measure, meaning the bigger the stock price, the larger the sway for a particular component.
4) WHAT IF APPLE NEVER SPLIT ITS STOCK? Apple has now split its stock four times throughout its history. It previously conducted 2-for-1 splits on three separate occasions: February 2005, June 2000 and June 1987. According to some back-of-the-envelop math by S&P’s Howard Silverblatt, if Apple never split its stock, you’d have eight shares for each original one prior to the most recent split. So Friday’s $645.57 closing level would translate to $5164.56 unadjusted for splits.
What is important about Apple's case is that their stocks traded as AAPL on Nasdaq and also they have strong communication with Nasdaq-100 component and S&P 500 component. This is main reason why it's better to think before investing in Apple stocks, but commonly this stock has huge potential before the next stock split.