Alphabet’s surprise move to split its shares 20-for-1 could pave the way for the tech giant to enter the Dow Jones Industrial Average.
Alphabet (ticker GOOG, GOOGL) announced the split after the close of trading Tuesday in conjunction with its fourth-quarter earnings that topped analyst estimates. Alphabet’s nonvoting shares (GOOG) are up almost 8%, or $212.43, to $2,970 in after-hours trading. Alphabet earned $30.69 a share in the period, against the FactSet consensus of $27.80.
Alphabet stock price will drop to around $148 based on the current stock price when the split becomes effective in July.
The 30-stock Dow Jones Industrial Average has an old-fashioned price weighting and Alphabet couldn’t enter the index without overwhelming it unless it splits its stock.
The highest priced and most influential stock in the Dow now is
(UNH) at $468. Among the five megacap tech stocks, only
(MSFT) are in the Dow.
(AMZN) , Alphabet and
(formerly Facebook) aren’t. Alphabet now is No. 3 in market cap behind only Apple and Microsoft.
The Alphabet move was unexpected because Ruth Porat, the company’s chief financial officer, had said at the company’s annual meeting last June that the company had no current plans for a split. This is the first Alphabet stock split since 2014.
The action could prompt Amazon.com to consider a stock split given that its shares trade at $3,023 a share. Amazon hasn’t split its stock since 1999. A call on an Amazon split likely would be made by chairman and founder Jeff Bezos.
Barron’s wrote about the prospects for an Amazon and Alphabet split last summer.
The Alphabet split also may make the stock more appealing to retail investors who can’t afford nearly $3,000 for a single share or don’t want such an investment to be such a large part of their portfolios.
Charles Schwab (SCHW) offers fractional shares of Amazon and other stocks in the S&P 500 through a product called Stock Slices but not all brokerage firms have a similar product.
A split also can be a favorable indicator by management, a view espoused by Gary Black, a former CEO of Janus and Aegon Asset Management U.S. who has a
following of more than 130,000, helped by his takes on Tesla (TSLA). Black’s view is that a split can be a bullish tell by corporate brass.
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