There’s an interesting story over at Businessweek talking about the possibility of Apple splitting its stock price, and possibly even earning a coveted spot as one of the 30 stocks that make up the Dow Jones Industrial Average (DJIA). This is all due to a research piece that Toni Sacconaghi, the Apple analyst at Bernstein, published recently.
The gist of the story? Sacconaghi makes the interesting point that Apple is the only dividend-paying company with a market cap over $215 billion that isn’t included in the Dow. But if it were included in the index, its would command a large weighting. This is because the DJIA uses stock price as the weighting mechanism. The solution is for Apple to split its stock in order to improve its chances of being added to the index.
Other technology companies in the index include Cisco, Microsoft, HP, IBM and Intel. Given that Apple is the largest company in the world (by market cap), shouldn't it be included?
You know what? Maybe Apple should be added. But I just don’t see why it matters beyond the short term gyrations of the stock market.
Does being included in an index make your company more valuable? Not really. Smaller companies that get tossed into the S&P 500 might get more credibility for being part of a serious index. But a company of Apple’s size and stature? Nobody is going to buy a Mac or an iPad because Apple’s in the Dow. It doesn’t change a darn thing with respect to the business.
And how about a stock split? Same thing. There is no long term evidence that a stock split creates value for shareholders. If you’re reading this and wondering what a stock split really means, think about ordering a pizza and getting it pre-cut into 12 slices. If you took that same pizza and cut each slice in half, you’d suddenly have 24 slices. Does it change the size of the pie? Rhetorical question.
Stock splits used to matter when stock exchanges were less electronic and stocks traded in 100-share lots. These days if you want to buy a single share, you place a buy order online and it gets done in a nanosecond. Stock splits are essentially irrelevant unless the price of a single share goes beyond the reach of a potential shareholder.
I haven’t seen the Bernstein research note discussing this whole concept, but I hope it contains more than just a discussion on stock splits and DJIA participation. Because, honestly, none of this really matters at all to shareholders beyond a bit of short term waves created as index funds buy into a newly-added stock. It isn’t exactly what I would consider value-added research.
I’m signing off to open a cold drink. Perhaps I’ll pour the contents into two glasses. Then I get more, right? #sarcasm. Source: Businessweek
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