Apple's resurgent stock may have as much to do with financial engineering as the company's technological wizardry.
Monday [June 9] 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 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 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-1 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 $645.57. The shares were hovering around $93 in Monday's late morning trading, up by less than 1 percent.
...And Bring Apple More Prestige
Although 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 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. (continued...)
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