Amazon Would Need a Pretty Big Split to Get Into the Dow Average
- (Bloomberg) –– It’s a speculation that often blows up around earnings season: now would be a good time for Amazon.com Inc. to split its shares, as a prelude to getting into the Dow Jones Industrial Average.
One byproduct of the stock’s relentless surge is that it would take a big split to pull it off.
At more than $3,450, the online retailer’s shares trade far too high to be put in the Dow, where the price tag of the stock is what determines its weighting. Even a 10-for-1 split, taking the shares to around $345, wouldn’t make it a shoo-in.
“The main problem for the Dow index is that it’s price weighted so it matters what the price is — not the market cap,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
The Dow is a 124-year-old stock gauge made up of 30 blue-chip companies that cover all industries except for transportation and utilities. Inclusion — or ejection — from the measure tends to make a splash: in August, Exxon Mobil Corp., Pfizer Inc. and Raytheon Technologies Corp. were kicked out of the gauge, making way for Salesforce.com Inc., Amgen Inc. and Honeywell International Inc.
A 10-for-1 split would make Amazon.com the Dow’s third-biggest weighting, behind UnitedHealth Group Inc. with a price tag of almost $400 and Goldman Sachs Group Inc., recently trading near $350.
Keith Lerner, chief market strategist at Truist Advisory Services, says Amazon.com’s potential inclusion would be more about prestige than anything else, considering the Dow is one of the most commonly quoted indexes.
“Getting into the Dow is symbolic more than anything and it just shows you that you are a leading company on a global stage and a leader in your industry,” he said, adding that a split could make its shares more accessible to retail investors.
Independent Advisor’s Zaccarelli agrees that should a potential split bring its per-share price down to between $100 and $300, it could make the stock more attractive to mom-and-pop investors. That’s because retail investors “do care what the actual dollar price of the stock is,” though institutional investors “could care less.”