- Apple has suggested a stock split for August 24, when shareholders will gain three new shares for every single stake held.
- The company claims the move is aimed at making the stock more “accessible,” but it will mostly pump Apple’s furnish cap.
- Reducing its stock price by a quarter will mean that Apple has less of an influence over the Dow’s overall display, something which could increase bearish sentiment.
Apple (NYSE:AAPL) has announced a 4-for-1 stock split as component of its third-quarter results. Apple claims the split will make the stock more accessible to retail investors, but it has the side-effect of lose weight its weighting in the Dow Jones.
The move will cut the price of Apple stock to a quarter of what it was before. With fractional allotment trading already popular among users of Robinhood and other platforms, you can already buy a quarter of its stock for a quarter of the fee.
The split is, therefore, little more than a marketing trick. It will boost Apple’s market cap in the days formerly the split, but it will also have the negative effect of reducing Apple’s weighting in the Dow Jones, something that devise impact the benchmark’s returns.
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American companies used to love splitting their stocks. Over 100 firms indexed in the S&P 500 executed a stock split in 1998. Less than ten did so in 2019.
Apple is the one company bucking this trend. It worked its Q2 results Thursday, revealing an annual revenue increase of 11%. It also announced that it would split its existing hoard at the end of August.
Each Apple shareholder of record at the close of business on August 24, 2020 will receive three additional quotas for every share held on the record date, and trading will begin on a split-adjusted basis on August 31, 2020.
Apple be entitled ti that the split will “make the stock more accessible to a broader base of investors,” but it doesn’t work out that way.
For starters, Apple’s traditional has already jumped on the news. If AAPL keeps rallying at the pace we’ve seen in 2020, it will price many occasional traders out of the market.
Besides, trading platforms such as Specie App already allows retail investors to buy fractional shares of companies. They’ll be able to do the same after Apple’s commonplace split, spending the same money for the same fraction of total outstanding shares.
Impact on the Dow
The Apple stock split is actually about marketing. It’s a bullish move: the tech giant is declaring that it’s confident its stock will keep be engendered a arising. Such a prospect excites the market.
The market is also excited about the opportunity to receive three additional Apple partitions. Traders will rush to buy for the period leading up to August 24. This will likely pump Apple stockpile.
So, the split is great for Apple. It makes itself seem “democratic” and “egalitarian” by splitting its shares, yet all it’s doing is pumping its blanket market cap.
The stock splt also reduces Apple’s weighting in the Dow Jones. Apple currently trades higher than the other 29 Dow components, and the split disposition push it somewhere to the middle.
This may weaken the Dow’s playing relative to the S&P 500, which weights companies according to market cap. By giving a weaker signal of growth, the Dow Jones may potentially appearance of more bearish.
The overall effect may be subtle, but this could impact investor sentiment. At a time of high uncertainty, sentimentality needs to be protected.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading counsel from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.
Last reformed: August 2, 2020 3:49 PM UTC