Apple (AAPL, $384.76) announced during its fiscal third-quarter report that it will undergo a 4-for-1 stock split in late August.
Investors who pushed the stock to fresh all-time highs in the following trading session seemed excited enough. But it’s not exactly great news for the Dow Jones Industrial Average.
That's because the Dow is a rarity in the world of stock market measures.
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Why Apple’s Stock Split Is a Downer for the Dow
Many indices including the S&P 500 and Nasdaq Composite are market cap-weighted, meaning the larger the company, the greater its representation in the index. But the blue-chip industrial average is price-weighted. As such, the Dow stock with the highest share price has the largest effect on the direction of the average.
Apple, with its $410 sticker price, is the most influential Dow component and has been since it leapfrogged UnitedHealth Group (UNH) in late April. UNH, at No. 2 in the Dow, currently goes for about $300.
Thus, Apple’s stock split won't affect its leadership in the S&P 500 or Nasdaq Composite. In fact, Apple's market value of more than $1.6 trillion makes it the most influential member of those two indices.
But AAPL splitting 4-for-1 means that, for now, Apple will have far less impact on the price-weighted Dow Jones Industrial Average. And that’s discouraging considering that Apple, up 40% year-to-date, has been one of the few bright spots in a dismal year for the industrial average.
The tech-heavy Nasdaq is up a whopping 18% so far this year, helped in no small part by Apple. The S&P 500 is flat, with Apple doing more than its fair share to keep it afloat.
But the Dow is down more than 8%. And it will be harder to make up lost ground after cutting Apple's influence. After AAPL splits and begins trading at around $100 a share, it will be somewhere around the 17th most important member of the average.
To put that in perspective, the split will cut Apple's weighting in the Dow from about 10% to just 2.7%, according to S&P Dow Jones Indices.
Not the First AAPL Split
To be sure, this isn't the first time Apple has carved up its stock. Shareholders have been through this four times already, in 1987, 2000, 2005 and 2014.
The difference this time is that Apple wasn't a component of the Dow back then. (It joined in 2015.)
Traditionally, the idea behind a stock split is to attract investors who might balk at a high share price. But splits have become far less common now that brokerages give customers the option of buying fractional shares. Indeed, a few of the most popular blue chips, including Amazon.com (AMZN) and Google parent Alphabet (GOOGL), have four-digit stock prices.
For the record, each Apple shareholder at the close of business on Aug. 24 will receive three additional shares for every share they hold. Trading will begin on a split-adjusted basis on Aug. 31.
Investors should know that the Apple stock split has little bearing on the prospects for AAPL shares, other than making it a little more accessible to small-dollar investors. But it certainly could dim the outlook for the already beleaguered Dow this year.
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