Market Further: How Apple's inventory break up will change the pecking order in 124-year-old Dow industrials

Apple Inc. is planning a 4-to-1 stock split and will have a major impact on the Dow Jones Industrial Average, of which it is a key component.

The iPhone maker announced Thursday that its board has approved the stock split. The division, which is intended to "make Apple accessible to a broader investor base", will affect registered owners and Apple shares from August 24
+ 1.21%,
The company closed at $ 384.76 on Thursday and is trading on a split-adjusted basis on August 31.

Because the Dow
is a price-weighted index. The planned split at the end of next month means that Apple will switch from the most influential component of the 30-member blue chip index to perhaps the 15th or 16th most important member of the index.

The Dow's price weighting means that the value of the stock meter is determined by the price changes of its components rather than percentage changes. The total value of the index is calculated by adding the price of the components and dividing by the so-called Dow divisor, which is currently 0.14744568353097.

This means that each dollar movement of a company leads to a 6.78 point increase in the 124 year old benchmark.

The divisor takes stock splits into account. In this way, Apple's 4-to-1 split changes its own impact on the benchmark and divisor, which is used to calculate the index. The divisor is determined by S&P Dow Jones Indices, which owns the Dow indices.

UnitedHealth Group Inc.
which closed at $ 305.23 could become the Dow's most influential member in late August. Home Depot Inc.
+ 0.62%
is currently the third most expensive stock in the Dow, ending trading on Thursday at $ 266.31.

Apple has been the largest and most influential Dow component since April 29, according to Dow Jones Market Data.

Other indices, including the S&P 500 index
and the Nasdaq Composite Index
+ 0.42%,
are weighted by market capitalization, so they are influenced by the total value of their components.

According to FactSet data, Apple is currently the largest company by market capitalization with a value of $ 1.647 trillion at the close on Thursday. Microsoft
# 2 at $ 1.54 trillion, while Inc.
+ 0.60%
is the third highest US company with $ 1.513 trillion.

For this reason, the large capitalization components have had a huge impact on broader market returns with the exception of the Dow, as stocks bottomed out at the end of March.

For example, the price-weighted Dow has risen 41.5% since its March 23 low, while the S&P 500 has returned 45% and the Nasdaq has risen 54% over the same period.

Apple became a Dow member in March 2015. At that time it was AT&T
+ 0.03%
was taken out in exchange for the technology monster based in Cupertino, California.

Share splits on Dow components are not uncommon. Nike Inc.
already announced a 2-to-1 share split in December 2015.

Apple's share split was announced after the company had overcome the COVID 19 crisis to report record results on Thursday. The company generated net income of $ 11.25 billion, or $ 2.58 per share, in the third quarter, compared to $ 10.04 billion, or $ 2.18 per share, in the prior-year quarter. FactSet analysts had expected $ 2.05 per share.

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