Apple Inc. was 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 the world’s largest company by market capitalization joins Microsoft Corp., Intel Corp., International Business Machines Corp., Cisco Systems Inc. and Visa Inc. AT&T is being kicked out after falling 4.5 percent in 2014. The changes will take effect with the start of trading on March 19.
Stocks in the price-weighted 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,” David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said in a statement.
The Dow average’s price-weighted methodology, which links a stock’s influence to its price per share, 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 Blitzer.
Price Weights
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, 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,” Blitzer said.
The original American Telephone & Telegraph entered the Dow in October 1916 and was removed in April 2004. The company removed today was created in the merger of SBC Communications and AT&T in November 2005.
Charles H. Dow, the co-founder of Wall Street Journal publisher Dow Jones & Co., 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 Co. and 10 other companies before expanding to 20 companies in 1916 and 30 in 1928.