Tuesday, June 10, 2014

Chopping Apple

The big news on Wall Street yesterday was that Apple's unusual seven-for-one split finally arrived. The stock price went from around $650 per share on Friday to $93 yesterday. Their robust-seeming dividend also got chopped in sevenths, dropping from $3.29 a share to just 47 cents.

Why is Apple doing this? The primary purpose is to make the stock more liquid, easier to be traded. It also makes the stock more easily assimilated into the venerable Dow Jones average, which is a price-weighted measure. That means a $600-plus stock - as Apple used to be - would overwhelm the other stocks in the index.

This isn't the first time Apple has split its stock. The company earlier had two-for-one splits in 1987, 2000 and 2005. If not for those earlier splits, combined with yesterday's split, a single share of Apple would now be trading at more than $5000.

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