Why Tim Cook Decided To Do A 7-For-1 Stock Split

Last night Apple announced a 7-for-1 stock split.

It was pretty unexpected since in 2012, Tim Cook told shareholders he didn't think stock splits did much. He reportedly said they provide a short term bump, but in the long term, they don't do much to change things.

On last night's earnings call, Cook explained why the company decided to do a split:

We are taking this action to make Apple stock more accessible to a larger number of investors. Each shareholder of record at the close of business on June the 2nd, 2014 will receive six additional shares for every outstanding share held on the record day and trading will begin on a split-adjusted basis on June the 9th, 2014.

The key phrase here is "accessible to a larger number of investors."

Apple shares are currently trading at ~$570, which makes them expensive to retail, mom-and-pop type investors. Anecdotally, I've had people tell me they would buy Apple shares but it's too expensive to buy one share.

Splitting the stock makes it cost ~$81 per share, which is much more affordable for small investors.

Cook is probably sick of Apple's shares being bought by big institutions and hedge funds, and wants to make it available to the people that buy iPhones. It could lead to valuation bump as people go to buy Apple stock just like they buy iPhones.

Another benefit of the stock split is that Apple will likely be added to the Dow Jones Industrial Average. The Dow didn't include Apple in the past because its share price was too high.