What does Apple’s stock split mean? 

When the world’s most valuable company, Apple (NASDAQ: AAPL), announces that it will be doing a four-for-one stock split, you can expect that there will be a lot of buzz and excitement following the news. If you are wondering just what this means for investors, we shed some light on the issue in this article.

First things first. What is a stock split?

A stock split is a decision by a company’s board of directors to divide each of its existing shares into multiple shares. That is, splitting a whole unit of stock into 2, 3 or more parts. For example, if an investor holds one share of a company worth $400, a 2 to 1 stock split would divide the investor’s holdings into two shares each worth $200.

A stock split does not change the value of an investor’s holdings or the market value of the company. The main difference is that the amount of shares held by the investor is multiplied and the price per share is reduced.

Why do companies split their stocks if it doesn’t affect overall market value?

Stock splitting is good for increasing liquidity, that is, the number of shares available for trading. Also, lower stock prices make stocks more accessible to investors with smaller capital. In its press release, Apple stated that it approved the split to make the stock “more accessible to a broader base of investors”.

Alternately, a stock split can result in an increase in share prices just after the decrease brought about by the split. This is because many smaller investors will swarm the stock after the decrease and boost demand and drive up stock prices.

This is not Apple’s first stock split

Since Apple Inc went public on December 12, 1980, it has had four stock splits, making this planned one the fifth in its history.

Apple’s first stock split in 1987 came after the stock price reached about $80. The second split in 2000 came after the stock price almost reached the $100 mark. Apple did both splits to avoid reaching triple-digit share prices at the time.

However, when triple-digit share prices became the norm, the company did not make any other moves when its stock surpassed the $100 mark. By the time the stock climbed up to about $700 in 2014, Apple split the stock. Now, in keeping with the company’s fashion, Apple is splitting its stock yet again to bring its stock price down to around $100 per share. The tech giant is towing this route even when its rivals are climbing steadily into the four-digits territory. There is something to be said about the company “sticking to traditions”.

What this stock split means for you

Now that we know what all the fuss is about, how exactly does this affect you?

If you already own stock in Apple Inc (NASDAQ: APPL), effective from August 24, the value of the stock you own will be divided into 4. So, the number of your stocks will be multiplied from 1 to 4, from 2 to 8 etc. For investors with a smaller capital and want to purchase Apple stock, trading on the split-adjusted basis will commence on August 31.

This move by Apple is akin to the fractional investing model offered by Bamboo which allows you to buy stocks at whatever amount you have.

Accessibility to stocks is, however, a smaller problem now, with the advent of fractional trading offered by Bamboo that allows you to buy shares in amounts less than 1.

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