“Along with Apple’s (AAPL) fiscal Q2 report in April, the company expanded its capital return program. The buyback was hiked by $30 billion, and the dividend was increased by about 8%. Neither of these items were a surprise, although the dividend raise seemed a little light,” Bill Maurer writes for Seeking Alpha. “Included in that press release, however, was a big surprise: ‘The Board of Directors has also announced a seven-for-one stock split. Each Apple shareholder of record at the close of business on June 2, 2014 will receive six additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on June 9, 2014.’ There are a couple of different ‘groups’ impacted by this split. The first one is the options market, which will be thrown for a loop because a 7 for 1 split is not a standard one. It’s not as easy to play with as a 2, 5, or 10 for 1 split.”
“The next group that is impacted is just regular stock investors. Those that already have shares will now have more shares at a lower price. But for those looking to get into Apple, this split may be a blessing,” Maurer writes. “There is always the discussion that companies split their stocks to make them more accessible to investors. If I have $1,000 and I want to invest in Apple, I can buy one share right now, and have a chunk of money left over. But when Apple splits, and let’s say it is at $85 afterwards, I can buy 11 shares. While I still have some money left over, it’s not nearly as much as the first example. The market will also have more liquidity in regards to Apple, because shares will be cheaper. There will be a lot more shares outstanding, and daily volume will increase to a point.”
“The third group is actually Apple itself,” Maurer writes. “Apple has a lot of decisions to make in regards to the split and the company buyback. Before the split, Apple can retire shares quicker since they are higher priced… Additionally, Apple must try to guess what shares will do after the split. If Apple thinks the split will cause shares to rise a bit, then the company should be buying now. The upcoming split also explains why Apple put the quarterly dividend at $3.29 a share. That number is divisible by 7, so the post-split dividend will be $0.47 a share… This split could get Apple into the Dow, a move that will certainly shake up the markets a bit.”
Much more in the full article here.