Apple just put its shares on sale.
The iPhone giant announced after the market closed Thursday that its board approved a 4-for-1 stock split for every shareholder of record at the close of business on August 24. This means each Apple shareholder will receive three additional shares for every share held. Shares will begin trading on a split-adjusted basis on Aug. 31.
On Friday, Apple’s stock jumped $40.28, or 10.5%, to $425.04.
A stock split doesn’t change the underlying value of the company, it just lowers the share’s price. For every share a shareholder owns, they will now own four. However the value of the shares will be one-fourth what they had been. The value to existing shareholders is that it adds liquidity and makes the shares more affordable to new investors.
It also signals to the market that the stock price has been rising. Investors want stocks with positive momentum. So, this tells investors that the stock has done well and can now be bought at a cheaper price.
Stock splits remain relevant for companies that want to bring in a wider base of shareholders, especially ones who had been put off by the high share price. Based on today’s closing price, after the split Apple’s shares would cost $106.26 apiece. Lowering the share price increases demand, especially among retail investors who want to own the stock, but couldn’t afford to pay $400 for a single share. Increased demand typically causes a stock’s price to rise. And this is how the existing shareholders benefit from the stock split.
Since going public in 1980, Apple’s stock has split four times. In 1987, 2000 and 2005 the stock was split on a 2-for-1 basis. In June 2014, the Cupertino, Calif., company split the stock on a 7-to-1 basis.
Apple made the announcement during its release of third-quarter earnings. The company posted stellar results that beat analysts’ estimates despite the challenging quarter in which most of the world went into lockdown because of COVID-19.
For the quarter ended June 30, revenues jumped 11% year over year to $59.7 billion. Net income leapt 12% to $11.25 billion, or $2.58 per diluted share, compared with $10.0 billion, or $2.18 a share in the year-ago quarter. The consensus estimate of analysts was for net income of $52.24 billion, and $2.04 a share.
“Our June quarter performance was strong evidence of Apple’s ability to innovate and execute during challenging times,” Luca Maestri, Apple’s chief financial officer said in a written statement. “The record business results drove our active installed base of devices to an all-time high in all of our geographic segments and all major product categories. We grew EPS by 18% and generated operating cash flow of $16.3 billion during the quarter, a June quarter record for both metrics.”
With $33 billion in cash on the balance sheet, in addition to the stock split, the board of directors declared a cash dividend of $0.82 per share of the company’s common stock. The dividend is payable on August 13 to shareholders of record as of the close of business on August 10.