Apple's stock split may not be good for the Dow

Apple announced a stock split on Thursday and it may not bode well for future gains in the Dow Jones Industrial Average.

The iPhone maker made the surprise announcement in its quarterly report, saying it will split its stock four-to-one when trading opens on Aug. 31, Apple’s first share split since 2014.

Stock splits have become rare on Wall Street in recent years, with just three S&P 500 members announcing splits in 2020, compared to an average of 10 a year over the past decade, according to S&P Dow Jones Indices.

Splitting their stocks is a way for companies to make it less expensive to buy individual shares, potentially attracting retail investors who make small trades.

Amazon’s shares cost $3,051 each, while an Alphabet share sells for $1,538 and Chipotle Mexican Grill’s shares cost $1,148.

With Apple’s stock surging 6% in extended trade to $408 following its strong quarterly report, the split means shareholders will receive three shares for every one that they own. Investors will be able to buy shares for closer to $100 each.

Apple said it hoped to make the shares “more accessible to a broader base of investors.”

However, brokerages increasingly let customers buy parts of shares, making the benefit of share splits less clear than in the past.

“Stock splits have become far and few between because people no longer care if it’s a $500 or $100 stock, because investors can now buy fractions of shares,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Splitting Apple’s shares means the Silicon Valley company will have less influence within the Dow, which is weighted to the price of the shares of its 30 components.

Apple was added to the Dow in 2015, and the 230% gain in Apple’s stock since then has been a major factor driving gains in the Dow, widely viewed as a reflection of the U.S. stock market.

Apple currently accounts for about 10% of the Dow, and after the share split, it will make up only a quarter of that, ranking it the 18th most heavily weighted stock in the Dow. Potential future gains and losses in Apple’s stock will have less influence in the Dow’s performance.

Apple's stock split will not affect its weight within the S&P 500, which is based on market capitalization.