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How Apple’s Stock Split Will Change Pecking Order in Old Dow

Apple Inc. is planning a 4-for-1 stock split and it has important implications for the Dow Jones Industrial Average, of which it is a key component.

The iPhone maker on Thursday announced that its board approved the stock split. The split, intended to make Apple “more accessible to a broader base of investors,” will impact owners of record as of Aug. 24 and Apple’s shares, which closed at $384.76 on Thursday, will trade on a split-adjusted basis on Aug. 31.

How Apple’s stock split will change the pecking order in the 124-year old Dow industrials

Because the Dow is a price-weighted index, the scheduled split at the end of next month means that Apple will move from the most influential component of the 30-member blue-chip index to perhaps the 15th- or 16th-most significant member of the index.

The Dow’s price-weighting means the value of the stock gauge is determined by the price changes of its components, rather than percentage changes. The overall value of the index is computed by adding the price of the components and dividing by the so-called Dow divisor, which currently stands at 0.14744568353097.

That means that every dollar move of a company translates to a 6.78-point swing in the 124-year-old benchmark.

The divisor accounts for stock splits, so in that way Apple’s 4-for-1 split will alter its own influence on the benchmark and the divisor by which the index is calculated. The divisor is determined by S&P Dow Jones Indices, which owns the Dow indexes.

UnitedHealth Group Inc., which closed at $305.23, could become the most influential member of the Dow at the end of August. Home Depot Inc. is currently the third-priciest stock in the Dow, finishing Thursday trade at $266.31. Apple has been the largest, and therefore the most influential, Dow component since April 29, according to Dow Jones Market Data.

Apple’s stock-split announcement came after the company brushed off the COVID-19 crisis to report record results Thursday. The company posted fiscal third-quarter net income of $11.25 billion, or $2.58 a share, up from $10.04 billion, or $2.18 a share, in the year-prior quarter. Analysts surveyed by FactSet had been anticipating $2.05 a share.

Source: FXPro


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