Apple has announced that it will split stock 4-for-1, taking effect on 31st August. This means that shareholders will receive three additional shares for each one they currently own, meaning the iPhone manufacturer’s shares are about to become much more affordable.
A stock split is an action taken by businesses, whereby a company divides up its existing shares to boost the liquidity of the shares.
Companies often decide to split their shares so that they can reduce the trading price of their stock to a range viewed as comfortable by many investors.
Although the amount of shares increases by a specific multiple, the total value of the shares is the same, so the split does not add any actual value.
When a stock split is performed, the price of shares automatically adjusts in the markets. After a stock split, the company’s overall value would remain the same.
Apple shares have surged to almost $400 in the past year. Their Q3 2020 earnings have surpassed expectations for the period, reporting more than $11 billion in profit and nearly $60 billion in revenue.
Both iPhone and Mac revenue was also up in the quarter. The company said the move will “make the stock more accessible to a broader base of investors.”
As Apple’s share price has become relatively expensive, a lower price can attract more budget-challenged investors. The new price for holders will be around $100 when it begins trading on a split-adjusted basis on 31st August.
This isn’t Apple’s first-time stock splitting. The company previously did splits in 1987, 2000, and 2005, with the most recent split being in 2014.
The 7-for-1 stock split in 2014 paved the way for Apple to be added to the Dow Jones Industrial Average. This tends to eschew high-priced shares due to its configuration.
As we head into Q4, it will be interesting to note the impact of Apple’s stock split. It looks likely that with cheaper shares, Apple will receive a flock of new investors.