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Five things to know about Apple's stock split

A shopper walks by an Apple store in Peabody, Mass., on Monday, the day the company’s fourth stock split since 1987, and first in nine years, went into effect. Since the 7-for-1 split was announced in April, Apple stock has climbed 24 percent.

Associated Press

A shopper walks by an Apple store in Peabody, Mass., on Monday, the day the company’s fourth stock split since 1987, and first in nine years, went into effect. Since the 7-for-1 split was announced in April, Apple stock has climbed 24 percent.

SAN FRANCISCO — Apple's resurgent stock may have as much to do with financial engineering as the company's technological wizardry. Monday marked Apple's first stock split in nine years, a move designed to make it more affordable to buy shares of the tech giant. The 7-for-1 split provided a boost even before it was completed. Since the split was announced in late April, Apple's stock has climbed 24 percent, creating more than $100 billion in shareholder wealth. Other factors contributed to the Apple rally: The company raised its quarterly dividend, committed $30 billion more to buying back its stock, struck a $3 billion deal to buy headphones maker Beats Electronics and previewed its latest software for iPhones, iPads and Mac computers. Here are five things to consider about the split:

Associated Press

1 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 share price often excites investors who previously had shied away from a stock because it looked too expensive. In Apple's 7-for-1 split, every stockholder received six additional shares for every share he owned as of June 2. The distribution will increase Apple's outstanding stock from about 861 million shares to about 6 billion, and the price fell from Friday's closing of $645.57 to about $93.

2 the split could BRING APPLE MORE PRESTIGE: Though it's unclear if this was Apple's intent, 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 billion in annual revenue. But Apple's high stock price made including the company in the Dow impractical 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.

3 SPLITS ARE FALLING OUT OF FASHION: 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 dot-com boom.

4 THIS ISN'T APPLE'S FIRST SPLIT: Apple has completed 2-for-1 splits three times: May 1987, June 2000 and February 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.

5 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 been revised to $100.72. Apple went public in December 1980 at a split-adjusted 39 cents per share.

Five things to know about Apple's stock split 06/09/14 [Last modified: Monday, June 9, 2014 8:45pm]
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