After Amazon.com announced a stock split, the race begins to see whether it or Google parent Alphabet joins the Dow Jones Industrial Average first. Don't be surprised if it ends in a draw.
Amazon (ticker: AMZN) announced Wednesday night that it will split its stock 20-to-1, meaning shareholders will receive 20 new shares for each share they hold. Those shares would be worth 1/20 what they were at the time of the split, so if it had happened after Wednesday's close the stock would have been worth $139.28, not $2,7885.58.
In the $100s this figure is significant. If you look at the Dow Jones Industrial Average, no stock is Intel (INTC) lower than $47.63 and UnitedHealth Group (UNH) no stock higher than $485.57, 15 out of 30 stocks in benchmark trading below $100 and are on some. It's the sweetest place for the Dow to join, and it's where Apple (AAPL), trading at $162.95.
that makes sense. The Dow is a price-weighted index, which means that the highest priced stocks get the highest weighting in the benchmark. The S&P 500 and Nasdaq Composite are weighted by market capitalization, so that the largest companies receive the greatest weighting. A stock with a target of around $3,000 would throw everything in the Dow.
There aren't many great reasons to split a stock these days. At one time, investors could only buy stock in single shares, and even then they were seen as "odd lots". Most trades were (and still are) done in blocks of 100 shares. But now, it's possible to buy fractional shares, so you can decide on the exact dollar amount you want to buy, even if it's $500 of a stock like Amazon.com, which costs around $3,000 per share. The only good reason to enter the Dow is to split a stock.
Of course, Alphabet (GOOGL) announced its own 20-to-1 stock split in February, and it immediately became clear that it had designs on the Dow. And after Alphabet's announcement, Barron said Amazon looked like it would be in line to divest itself.
It's fun to think about which stock might make it to the blue-chip index first, but don't be surprised if they go together. Two tech stocks are sitting near the bottom of the Dow right now -- Intel and Cisco Systems (CSCO) at $55.92. And the decision-making committee often prefers to weed out stocks that have been traded too cheaply for too long (not always for the better).