This morning Apple Inc. (AAPL) followed through with a 7-1 stock split opening this morning at $92.69 per share. This is a pretty interesting move considering that stock splits have become less and less popular since the stock splitting frenzy during the dot com era. Regardless, there are a few interesting reasons why Apple chose to do this and how it bodes for their stock moving forward.
First and foremost, this stock split has more to do with psychology than logic. At the end of the day, a stock split does absolutely nothing in regards to the fundamental valuation of the company. But, even though Apple’s market value remains the same, a lower price per share will often attract more investors who stayed away when share prices were “perceived” to be more expensive.. Buying one share of a $600 stock seems “worse” than 6 shares of a $100 stock, but in reality its the exact same.
Another reason Apple may have done this is to pave the way for their entry into the Dow Jones Industrial Average. The Dow is a price weighted index, so they are usually unwilling to allow high priced companies to join, since they would carry more weight in comparison to other companies. By going through with a stock split, AAPL may be paving the way for switching to the Dow.
I usually hate initiating a purchase following sentiment when it comes to dividend stocks. But, this proved to be too good an opportunity to pass up. The sentiment following the stock split, WWDC 2014 and the upcoming ramp up to their usual September new product launches creates an interesting situation. I had already been eyeing Apple stock for a while and, even though its slightly overvalued, decided to initiate a position as my first tech industry stock in my dividend growth portfolio.
On 6/9 I purchased 10 shares of Apple Inc. (AAPL) at $93.67 with a quarterly dividend of $0.47. This translates to an additional $18.80 of annual dividend income!
Full Disclosure: Long AAPL