Apple has been added to the Dow Jones Industrial Average, ending a banishment that kept the world’s largest company out for years before a stock split made its shares palatable to the price-weighted measure.
The changes will push the number of technology-related companies in the 30-member gauge to six and boost their influence even more as Apple joins Microsoft, Intel, International Business Machines, Cisco Systems and Visa. AT&T is being kicked out after falling 4.5 per cent in 2014. The changes will take effect after the close of trading on March 18.
“The Dow is supposed to be the dominant companies in each different sector of the economy and I don’t think anybody can argue that Apple isn’t by far the dominator in the phone sector,” said Michael Chadwick, who manages US$150 million as the chief executive of Chadwick Financial Advisors in Unionville, Connecticut.
“The digital age is taking over. It’s going to be a function of those who can adapt and change.”
The Dow average’s weighting methodology, which links a stock’s influence to its share price, had long barred Apple from joining the gauge. The timing of Apple’s addition hinged on not just its own 7-for-1 split last June but also Visa’s 4-1 split scheduled for March 19 of this year, according to David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.
Stocks in the index are selected by a committee of Wall Street Journal and S&P Dow Jones Indices representatives based not on quantitative rules but on the companies’ reputation, relevance to investors and growth record.
“As the largest corporation in the world and a leader in technology, Apple is the clear choice for the Dow Jones Industrial Average,” Mr Blitzer said.
Apple’s split brought the stock price closer to the median price in the Dow and the Visa split will reduce the technology weight and make room for Apple, Mr Blitzer said.
“The DJIA is price-weighted, so extremely high stock prices tend to distort the index while very low stock prices have little impact,” Mr Blitzer said.
AT&T’s removal will leave Verizon Communications as the only telephone stock in the Dow.
AT&T shares fell 1.5 per cent on Friday. Apple closed higher by 0.2 per cent.
“There’ll be some surprise that AT&T is the name that’s being removed and Verizon is being kept,” said Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities.
“From the historical standpoint, AT&T represents an American institution. To see that leaving the Dow is somewhat of a psychological blow. In terms of impact on the stock itself I don’t think it’s going to be overly significant.”
Charles Dow, the co-founder of the Wall Street Journal publisher Dow Jones, devised the Dow average in 1896 to provide a clear view of the stock market and “barometer of the times”, according to the S&P Dow Jones Indices website. It originally included American Tobacco, General Electric and 10 other companies before expanding to 20 companies in 1916 and 30 in 1928.
Apple’s Dow entrance makes it only the second among the three largest US companies by market capitalisation to be included in the gauge. Class A shares of Google, the third- largest US company, closed at $581.44 on Thursday, effectively making them too expensive for inclusion in the Dow average.
The last Dow reshuffling took place in September 2013 when Goldman Sachs Group, Visa and Nike replaced Bank of America, Hewlett-Packard and Alcoa. The changes boosted the influence of financial-related companies to five.
At $126.41, Apple’s shares will get the sixth-biggest weighting in the gauge, with a 4.3 per cent share, according to data compiled by Bloomberg. AT&T was the fourth-smallest stock, priced at $34 with a weighting of 1.2 per cent. Goldman Sachs will have the highest weighting following Visa’s split and Apple’s addition, based on current share prices.
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