Bernstein: Apple Is Considering Splitting Its Stock And Joining The Dow

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Photo: S. Baker via Flickr

Apple may be considering a stock split in order to finally be listed on the Dow Jones Industrial Average, according to a new research note from Bernstein Research.Toni Sacconaghi, an analyst with Bernstein, writes that the firm views the “timing as ripe” for Apple to join the Dow. He offers several reasons why, including:

  • Apple is the only company with a market cap above $215 billion which pays a dividend, but is not included in the Dow.
  • There are only five tech companies on the Dow right now and none have “meaningful direct exposure” to the booming smartphone and tablet market. “We are in the midst of an unusually long time before changes [in the Dow’s tech landscape], indicating that one is probable over the next 6-12 months.”

Here’s the relevant bit from Sacconaghi’s research note:

We see the timing as ripe for Apple’s potential inclusion in the DJIA following a stock split for several reasons: (1) Technology companies are under-represented in Dow (compared to the S&P 500 the Dow is under-weight technology by 370 bps), with IBM accounting for over two-thirds of the current tech weighting; (2) A stock split would enable AAPL to be considered for Dow inclusion, given that is a price based index; (3) Apple’s recent introduction of a dividend is consistent with other Dow components, all of whom pay a dividend. Only 5 of the 30 Dow companies are in the Tech sector (Exhibit 5), and outside of IBM, all have been added in the past 15 years. The price weighting of the Dow under-represents Tech companies by 170bps compared to a market cap weighting. Further, IBM has the largest weight in the index at 11.4% (Exhibit 6). Excluding IBM, Tech’s weighting in the Dow is only 5.3%. When compared to the larger and broader S&P 500, which is market cap weighted, Tech is underweight by 370 bps (Exhibit 7). Apple alone has a 4.37% weight in the S&P 500. This disparity between Tech weighting in the Dow and S&P 500 leads us to believe the Dow is likely to add more Tech stocks, and that Apple would be a primary candidate if the company split its stock. Apple’s initiation of a dividend brings the company into line with all other Dow components. We note that Apple is currently the only company above $215B in market cap that pays a
dividend and is not included in the Dow. Although Apple’s dividend is below the Dow average, it is within 1 standard deviation and has approximately the same yield as IBM (Exhibit 8). Other potentialtech companies are much smaller by market cap and some would also potentially have to split their stock and consider initiating a dividend (Exhibit 9). We show other potential additions outside of Tech ranked by market cap in Exhibit 10.

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