Apple slice: Share split makes joining the Dow more likely

Thu Apr 24, 2014 4:23am IST

The Apple logo is pictured at a retail store in the Marina neighborhood in San Francisco, California April 23, 2014. REUTERS/Robert Galbraith

The Apple logo is pictured at a retail store in the Marina neighborhood in San Francisco, California April 23, 2014.

Credit: Reuters/Robert Galbraith

Related Topics



(Reuters) - Who says Apple 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 (DIA.P), which has about $11.55 billion in assets and trades about 6.5 million shares daily.

The SPDRs S&P 500 ETF Trust (SPY.P), meanwhile, trades about 116 million shares daily, and is often the most actively traded issue in the market on a daily basis. It has $157.2 billion in assets.

Oddly, putting Apple in the Dow at $75 a share would give it only a weight of about 3 percent in the index. Visa Inc (V.N), the average's highest-priced stock at $208.82, has an 8.2 percent weighting, despite having less than one-third of Apple's market value.

Of course, letting Apple in means another stock in the sector is likely to be replaced. That could mean one of the other tech behemoths - Microsoft Corp (MSFT.O), Intel Corp (INTC.O) or Cisco Systems Inc (CSCO.O).

In the Dow's last shuffle, three lower-priced stocks were given the boot: Bank of America Corp (BAC.N), Hewlett Packard Co, and Alcoa Inc (AA.N), and were replaced by Goldman Sachs & Co, Visa Inc (V.N) and Nike Inc (NKE.N).

(Reporting by David Gaffen, Caroline Valetkevitch and Herb Lash; Editing by Richard Chang)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared
Sensex surges nearly 400 points on energy reform, state elections

Sensex surges nearly 300 points on energy reforms, state elections

The BSE Sensex surges nearly 300 points and the Nifty gains 90 points after the government's energy reforms lead to a rally in energy firms, while wins by Prime Minister Narendra Modi's party in two state elections raise expectations for additional reforms.  Full Article 


Indian State Media

Indian State Media

Controlling the message: Modi chooses state media  Full Article 

Asian Markets

Asian Markets

Japanese stocks lead sharp Asia rebound as U.S. data reassures   Full Article 

Gold Curbs

Gold Curbs

Finance Ministry wants to reimpose curbs on gold imports - ET  Full Article 

Eyeing Reebok

Eyeing Reebok

Investor group aims to buy Reebok unit - WSJ  Full Article 

Gold Lower

Gold Lower

Gold eases as dollar, equities recover on strong U.S. data  Full Article 

Health Check

Health Check

Credibility meets compromise in Europe's bank stress test.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage