If there is truth in the rumour that Apple may be planning to join the Dow Jones, it may be necessary for the company to split its stock, not just in half, but into sixths.
That would mean that one stock held at close of play last night, would be split into six shares worth (at yesterday’s price) $105 each.
The Dow only has two companies that trade over $100, so if Apple was to get to that level it would need to do a 6 to 1 split or higher.
The last time Apple split its stock was 28 February 2005 when it was trading at around $80. Prior to that it split its stock on 21 June 2000 and 15 June 1987.
A stock split would encourage smaller investors to purchase stock, however its unlikely to have any real impact other than in the short term. Following any announcement that there will be a stock split, Apple is likely to see an increase in interest in its stock prior to the split, notes The Motley Fool.
If Apple’s purpose in splitting its stock is to join the Dow that begs the question: why would Apple want to join the Dow?
It would appear that it is the Dow that would benefit from Apple’s presence. Some reports suggest that since Apple is the world’s most valuable company it belongs in the Dow. By joining the Dow Apple would boost the markets, bringing the index to an all-time high.
Bernstein analyst Toni Sacconaghi notes that the tech sector is under-represented in Dow, accounting for 17.3% of the weighting, while in the S&P 500, tech accounts for 19.8% of the weighting. "This disparity between Tech weighting in the Dow and S&P 500 leads us to believe the Dow is likely to add more Tech stocks, and that Apple would be a primary candidate if the company split its stock," Sacconaghi wrote.