“After announcing its 7-1 stock split, Apple also outlined why it did so, answering in advance the oft-raised question with a simple answer: ‘We want Apple stock to be more accessible to a larger number of investors,'” Daniel Eran Dilger writes for AppleInsider. “Apple didn’t frame its statement to suggest a specific type of investor [to whom] it was hoping to make its stock ‘more accessible…’ but there are a couple reasons why a split would attract different types of buyers.”
“Institutional buyers, including mutual funds and other banking institutions, may have rules related to the maximum price of the shares they hold. By splitting its stock into a fraction that causes the share price to align with the rules of a greater swath of these buyers, Apple increases the number of potential buyers,” Dilger writes. “For individual investors, the psychology of a lower per-share price and greater number of shares might simply feel like a better deal, although, of course, the split has no direct impact on value.”
“After a two year period of irrational stock moves, Apple may likely want to erase the mental barriers investors may have about where Apple trades, as well as breaking any psychological links between Apple’s share price and that of other companies one might compare it against,” Dilger writes. “Dividing the stock price by 7 results in an entirely new set of numbers that aren’t easy to mentally translate in comparisons with past expectations. This is similar to how a tourist – in a country where the local currency is an unfamiliar fraction of the value of the currency [in which] his expectations are set — now looks at prices in a new way. The seven way split certainly explains why Apple chose an odd number for its new dividend: $3.29 is Apple’s first dividend to be evenly divisible by seven, resulting in 47 cents.”
Read more in the full article here.
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