I asked for an Apple stock split in 2014 earlier this month not really thinking there would be one. After all, 2013 and prior saw Apple being a company that didn’t really care about their stock and investors – at least not publicly. But in January Tim Cook announced they bought back a truckload of shares around the $500 price now they have announced a 7 for 1 stock split that will take place in June. Apple is definitely becoming much more friendly to its stock holders.
But what does the stock split really mean?
Splitting a stock is the same as splitting a $20 dollar bill into 2 tens, 4 fives, or 20 ones: you have exactly the same thing as you did before the split except you have more bills that add up to $20.
In Apples case with the 7 to 1 split, every share that investors own will become 7 shares and each of those will be worth 14.285% of what that 1 share was. So, if you owned 100 shares of Apple stock, you will own 700 shares when the stock split takes place in June.
Lets assume Apples stock price is $600 per share on June 2nd before the split.
You have 100 shares X $600 = $60,000
You will have 700 shares X $85.714 = $60,000
The dividend will also be cut in 1/7th so you will get exactly the same dividend payment as you would have if the stock had not split.
Why Split The Stock At All?
Splitting Apple’s stock brings the price down under $100 and makes it eligible to be included in the Dow Jones Industrial Average. That daily stock gauge is very prestigious and Apple should be included as it is one of the world’s largest companies. Until now, it was the high stock price that excluded it from being eligible to be included so that could change down the road.
The other reason Apple is splitting its stock is to bring it down to a level that more individual investors can buy. Facebook trades an average of 70,000,000 million shares a day and Apple only trades 10,000,000. Both companies are widely popular and many people use both companies products every day. But with Apple’s high stock price, it prevents the little investor from buying shares because they may not want to only buy 1 or 2 shares. Now, with the stock split, the price will be coming down to a level where the small investor will be able to buy 10 or 20 shares and will be more likely to do so. (read my thoughts on whether you should buy Apple stock after the split)
Apple’s 7 to 1 Split Is A Strange Number
Many people have asked the meaning for Apple choosing a 7 to 1 split and not something more usual like 5 to 1 or 10 to 1? The best reason I have heard is that Apple’s all time high a couple of years ago was very close to $700 per share. When you split the stock into seven, that will make the new/updated all time high $100 which is a very easy number to remember. Apple rarely does anything without a lot of thought and I believe this is most likely the reason, or at least a big part of it.