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|My Analysis Of Apple's New 4/1 Stock Split - Buy Or Not by RentedReality(m): 8:13pm On Sep 01, 2020|
Warning: article contains numbers and plenty words
You might have heard in the news recently of Apple's stock split, and how it will make it easier for more people to own Apple shares. Read here:https://edition.cnn.com/2020/08/24/investing/apple-stock-split-investors-trnd/index.html. Sounds great right? What could be wrong, afterall Tesla recently did same and this is the fifth time Apple are doing it.
I'll try and explain, bear with me. Economists in the house, please correct me or chip in:
1. Apple stock price was around $444 before the split. Since the split was 4/1, meaning four stocks in the place of one, divide by 4 and Apple's new share price is approx. $112. Meaning if you owned only one Apple stock at $444, you now own 4 Apple stocks at &112 each
2. Apple had 4.2bn number of shares when it's share price was $444. When valued, it means they are worth $1.86 trillion ($444 X 4.2bn shares). Splitting 4/1 means 4.2bn shares X 4 = 16.8bn shares. If you multiply 16.8bn shares by their new price of $112 = $1.88 trillion. You can see their valuation remains almost the same despite the 4/1 split.
3. Asuming 1m people owned those 4.2bn shares when it was $444. With the price drop to $112, more people will buy. As it stands, those 4.2bn shares are now 16.8bn and owned by the same number of people (1m ).
4. Apple's dividend per share is $0.83. Meaning, it paid $0.83 for every share owned ($0.83 X 4.2bn = ~ $4bn in total dividend paid before the split.) Remember, that was before the split.
Now, with the split, they will have to pay at least 3X the amount of last year's total dividend just to be able to pay it's current shareholders (1m) a profit of $0.75 per share. (0.75 X 16.8bn shares = ~$14bn). So to pay their current shareholders a dividend which has reduced in value by 10%, they will need to pay out 3X as much dividends as they previously did. Talk less of when you have more people owning Apple shares as a result of the price drop.
But here is why I think it is unfair to older investors and the split is lopsided - rather than share that 3X total dividend increase by it current shareholders, it would rather devalue its stocks, sell to more people thereby giving everyone less value than they would get.
The people this will benefit the most are new buyers.
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