Apple's Stock Split Is Gift to Retail Investors

NEW YORK (TheStreet) -- Contrary to financial theory, Apple's  (AAPL) 7-for-1 stock split has the potential to increase the company's valuation.

Apple announced the 7-for-1 split Wednesday, at the same time it said it had increased its stock buyback authorization to $90 billion from the $60 billion announced last year. The Cupertino, Calif.-based company is also increasing its dividend.

The stock split will apply to investors who hold shares as of June 2. They'll receive six additional shares for each share held. The stock will begin trading on a split-adjusted basis on June 9.

The move, which should reduce the company's stock price from the $550 range to around $75, follows calls for Apple to broaden the company's stock appeal for individual investors.

Financial theory states that changing the number of shares outstanding for a company does nothing to its valuation, but a common-sense view of Apple's current situation supports the idea that the stock split could benefit Apple's valuation.

The cheaper stock price will allow retail investors to now trade Apple stock in 100-share blocks. Most brokerage firms give discounts to investors who trade in blocks.

Previously, a block of Apple shares would have cost more than $50,000, putting it out of reach for most small investors. With the stock split, however, the block would cost less than $10,000.

The lower price would give access to a larger portion of the market, potentially increasing trading volumes and decreasing the bid-ask spread.

What's more, stock splits can spur investor confidence.

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