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After Stock Split, is Dow Membership Next for Apple Stock? - Stocks In The News

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After years of speculation and following the announcement earlier in the year, shares of Apple ( AAPL ) finally underwent their long-awaited split. Shares of the company split 7 for 1, pushing the price below $100/share for the first time in recent memory.

This move didn't actually create any value for shareholders, as investors still maintained the same level of ownership in the company, just at a lower share price with more total shares. However, since the announcement of the split back in April, shares of the computing giant have surged by more than 25%, though at least part of this big run up is some of its other measures such as the $30 billion stock buyback increase and the boost to the quarterly dividend.

The real interesting aspect of the stock split is how it relates to the Dow Jones Industrial Average, arguably the most watched benchmark by retail investors. This 30 stock index weights securities by stock price, as opposed to market capitalization levels, and thus Apple, with a price over $500 for quite some time, would have thoroughly dominated the index.

Now, however, with a share price below $100, Apple appears to be a prime choice for Dow Jones to include in its next index update. After all, at the current level, Apple wouldn't even make the top ten weights in the Dow, as top components would still be Visa ( V ) and International Business Machines ( IBM ) , putting Apple somewhere behind Exxon Mobil (XOM) which is currently in the #10 spot and trading at just over $101/share.

The move to include Apple would also better reflect the tech heavy nature of the U.S. economy, as currently industrials and tech vie for the top spot in the index from a sector perspective. However, the vast majority of this is tied up in IBM, leaving very little for the more consumer side of the technology world, an increasingly important aspect of the American economy.

Who to Kick Out?

The difficult part of this discussion is who to kick out from the index in order to make room for Apple. For those who are worried about being too tech heavy-something that I don't think is a concern-replacing Cisco ( CSCO ) with Apple is a potential option.

I am also of the opinion that the health component in the Dow is getting a little excessive, so culling one of the names here, such as MRK for example, could also be a way to go to make room for Apple.

Bottom Line

Personally, I think that getting into the Dow was one of the main reasons for the stock split. Apple had been against it for quite some time, as it really doesn't add any value to shareholders.

However, the move seems to have rekindled some interest by the retail investor, as shares are already approaching triple digits once again. And now with its reduced share price, it seems like a perfect candidate for inclusion in the DJIA.

The benchmark is easily one of the most well-known by retail investors, arguably more so than the S&P 500, and membership does give a bit of prestige as well. Still, only time will tell if Apple can gain access to this exclusive club, but given its new low-price and its status as an investor favorite, it seems like a perfect match now.

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INTL BUS MACH (IBM): Free Stock Analysis Report

APPLE INC (AAPL): Free Stock Analysis Report

VISA INC-A (V): Free Stock Analysis Report

MERCK & CO INC (MRK): Free Stock Analysis Report

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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