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

Market Extra

Last Updated: July 30, 2020 at 9:46 p.m. ET

First Published: July 30, 2020 at 6:29 p.m. ET

Apple’s 4-for-1 split will alter its own influence on the benchmark and the divisor by which the index is calculated

Apple’s flagship store in Beijing.

Getty Images

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.
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.
Other indexes, including the S&P 500 index
and the Nasdaq Composite Index
are market-capitalization weighted, therefore they are impacted by the overall value of their components.
Apple currently stands as the biggest company by market cap, boasting a value of $1.647 trillion, as of Thursday’s close, according to FactSet data. Microsoft
ranks No. 2 at $1.54 trillion, while Inc
is the third-most highly valued U.S. company at $1.513 trillion.
It is for that reason that the large-capitalization components have had an outsize impact on returns for the broader market, excluding the Dow, since stocks hit their recent nadir in late March.
For example, the price-weighted Dow has gained 41.5% since its March 23 low, while the S&P 500 has returned 45% and the Nasdaq has climbed 54% over the same period.
Apple became a Dow member back in March 2015. Back then, AT&T
was taken out in exchange for the Cupertino, Calif.-based technology behemoth.
Splits of shares in Dow components aren’t uncommon. Nike Inc.
announced a 2-for-1 stock split back in December 2015.
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.



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