com shares are moving sharply higher in after-hours trading after the e-commerce and cloud-computing giant declared a 20-for-1 stock split and announced an expanded stock-repurchase program.
While stock splits don’t mathematically create any value for holders—they’re the financial equivalent of cutting a pie into smaller pieces—retail investors tend to like them, and split announcements often trigger short-term rallies. And, in fact, Amazon shares (ticker: AMZN) are up nearly 7% on the news, at $2,978.
Amazon also announced a $10 billion stock-repurchase plan, replacing a previous $5 billion stock-purchase authorization in which it had bought back $2.12 billion of its shares. The program doesn’t have a fixed expiration date.
one potential benefit of the Amazon stock split could be the addition of the company’s shares to the
Adding high-priced shares to the Dow is problematic because the index is price weighted—the same percentage move matters more for a high priced stock than a low priced one. So a 1% move in
(UNH), which trades for $486 a share and has the highest price shares in the Dow, carries almost triple the weight in the index as a comparable move in, say,
(AAPL) shares, which closed Wednesday at $163.
Adding a stock with a price in the four-digit range would instantly give the company the heaviest weighting in the index, and in fact, neither Amazon nor Alphabet are currently included in the index. The splits could change that.
It’s also worth remembering that changes in the roster of Dow components occur infrequently—the last changes came in August 2020, with
added to the index, replacing
The Amazon split will be effective at the close of business on May 27.
Write to Eric J. Savitz at [email protected]