Apple Inc stock split: Share slice makes joining the Dow Jones industrial average more likely

Apr 24 2014, 11:43 IST
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SummaryWho says Apple Inc does not want to be in the Dow Jones industrial average?

Who says Apple Inc does not want to be in the Dow Jones industrial average?

The iPhone maker's market value has stood high above most U.S. corporations' for a few years, yet Apple still isn't a component of that blue-chip stock benchmark. That is because the Dow weighs its 30 components by price, so a $500 stock would overwhelm the index.

A seven-for-one stock split that will chop the price to about $75 changes the picture. Apple stunned the market with that announcement when reporting earnings on Thursday, and the change seems to increase the chance that the stock will be added to the index.

"I would think it would likely make it a Dow contender," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago, who owns the stock.

"Certainly previously it was not a candidate."

The exclusion of the largest U.S. company is odd, since the 118-year-old stock average's stated purpose is to provide "a clear, straightforward view of the stock market and, by extension, the U.S. economy," according to the S&P Dow Jones Indices website.

Howard Silverblatt, index analyst at S&P Dow Jones Indices, said the firm does not comment on index membership changes. With the stock's close at $524.75 on Wednesday, the split would put it at $74.96, slightly less than the Standard & Poor's 500 stock index's average component price of $77.91.

That said, some investors do not think the company is doing this to entice the S&P Dow Jones Indices.

"I don't think they targeted the Dow. I'd be surprised, although it's fairly possible. But I don't think many companies think about that. Certainly not a tech company," said Rick Meckler, president of hedge fund LibertyView Capital Management LLC in Jersey City, New Jersey.

"It is shareholder friendly for the most part, and it's the kind of thing they have gotten some criticism lately for over dividend policy and returning capital."

The ultimate effect on Apple itself would likely be limited: The number of funds that track the Dow industrials is rather small because the average only has 30 components. (The S&P Dow Jones fact sheet on the Dow does not mention how many funds track the 30-stock average, whereas one click on the S&P 500 summary shows that funds with assets totaling $5.1 trillion track the S&P.)

The most notable exchange-traded fund tracking the Dow is the SPDR Dow Jones industrial average ETF Trust, which has about $11.55 billion

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