SAN FRANCISCO — Apple’s resurgent stock might have as much to do with financial engineering as
the company’s technological talent.
Apple’s stock split yesterday for the first time in nine years, a move designed to make shares
of the iPhone and iPad maker more affordable.
The maneuver provided a boost even before it was completed. Since the split was announced in
late April, Apple’s stock has climbed 25 percent, creating more than $100 billion in shareholder
wealth while the Standard Poor’s 500 has risen 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.
Split could attract investors
The reason has more to do with psychology than logic. Splits lower a stock’s trading price by
substantially increasing the number of 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-1 split. That means every Apple stockholder received six additional
shares for every share owned on June 2. The distribution will increase Apple’s outstanding stock
from about 861 million shares to about 6 billion shares.
Another consequence: Apple’s stock price reset from Friday’s closing price of $645.57 to $92.22.
Yesterday the shares rose $1.48, or 1.6 percent, to close at $93.70.
… and bring prestige
Although it’s unclear whether 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 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 stock price above $200.
Whether Apple now will make it into the Dow Jones is the “$3 trillion question,” said Howard
Silverblatt, senior index analyst for SP Dow Jones Indices.
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 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-com boom.
Not Apple’s first split
Apple has completed 2-for-1 splits on three previous occasions: May 1987, June 2000 and February
2005. The stock rose 2 percent in the year after the 1987 split and surged by 60 percent in the
year after the 2005 split. The shares plunged 57 percent in the year after the 2000 split, which
occurred amid a steep downturn in technology stocks.
Adjusting the bar
Before this latest split, the record high price for Apple’s stock was $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.