Apple is set to split four for one this Friday, August 28, 2020 after the close of the regular market session in the US. On Monday, August 31, Apple will trade at its new, post-split price. If the stock closes at $500 per share on Friday afternoon, an owner of 100 shares will have 400 shares priced at $125 per share come Monday morning.
Dividend Reinvestment and Fractional Shares
A number of our clients own Apple and have had dividend reinvestment for years. The upside of dividend reinvestment is the consistent buying that occurs. A downside is the accumulation of fractional shares. If a dividend is $50, and the stock is $500, the dividend purchases 0.1 shares with that dividend payment. Many people end up with fractions of shares, referred to as fractional shares.
How does your broker handle stock splits?
Custodians handle fractional shares differently during stock splits. Some custodians sell fractional shares (often resulting in capital gains) and then split the stock. Other custodians simply split the stock and don’t do any fractional selling.
Fortunately, Charles Schwab (the custodian for most of our client assets) will not be selling fractional shares of Apple on the split date. For example, clients that have 107.30 shares will simply end up with 429.20 shares after the 4:1 split (107.30 x 4 = 429.20)
Capital Gains and Losses
What does your custodian do? If your custodian sells fractionals, perhaps you want to do that yourself to retain control over which shares get sold….and to take advantage of either capital gains or capital losses, depending on what you may need/want. If you own Apple stock in a tax-free account, such as an IRA, you may want to consider taking some profits around the split date. Feel free to email us your questions regarding Apple’s stock split.
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