Wednesday, June 18, 2014

5 THINGS TO KNOW ABOUT APPLE’S STOCK SPLIT





Apple’s resurgent stock may have as much to do with financial engineering as the company’stechnological wizardry.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.The maneuver provided a boost even before itwas completed. Since the split was announced in late April, Apple’s stock has climbed 25percent, creating more than $100 billion inshareholder wealth while the Standard & Poor’s 500 edged up just 4 percent.



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




THE SPLIT COULD ATTRACT MORE INVESTORS.
The reason has more to do with psychology than logic. 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.




Companies executing splits hope to attract more buyers by making the stock appear
more affordable. Apple executed a 7-for-i 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 million shares to about 6
billion shares.To adjust for that swing, Apple’s stock price fell
dramatically from Friday’s closing price of $645.57to $92.22. On Monday, the shares rose $1.48 to
close at $93.70.



AND BRING APPLE MORE PRESTIGE
Although it’s unclear if this was Apple’s intent, thelower 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 billion 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.
Whether Apple will now make it into the Dow Jones is the “$3 trillion question,” says Howard Silverblatt, senior index analyst for S&P Indices.

SPLITS ARE FALLING 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 through 2000, a period that coincided with the dot-corn boom.




THIS ISN’T APPLE’S FIRST SPLIT
 

Apple has completed 2-for-i splits on three previous occasions: May 1987, June 2000 and
Februar’ 2005. The stock rose 2 percent in the first year after the 1987 split and surged by 60 percent in the first year after the 2005 split. The shares plunged 57 percent in the first year after the 2000 split, which occurred amid a steep downturn in technology stocks.


YOU’LL NEED TO 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 splita
djusted 39 cents per share.


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