US stocks: Apple to replace AT&T in Dow industrials

Published March 6, 2015 10:10pm

NEW YORK - Apple Inc, the nation's largest company by market value, will join the Dow Jones Industrial Average on March 18, replacing AT&T Inc, S&P Dow Jones Indices said on Friday.

Apple holds a market capitalization of about $736 billion, making it the largest publicly traded company in the world. AT&T, by contrast, has a market value of $176.5 billion.

The iPhone and iPad maker had been notable by its absence in the 30-stock average, precluded from inclusion because its stock price was too high for the price-weighted index. The move by S&P Dow Jones Indices had been widely anticipated since a seven-for-one stock split in June 2014.

Since Apple split its shares seven-for-one last June 6, it’s delivered investors a gain of more than 43 percent including dividend payments, and that has contributed almost one third of the Nasdaq 100’s return of 18.6 percent, according to ETF.com. By comparison, the Dow’s total return has been only 8.97 percent over that period, and it has also underperformed the S&P500 – which does include Apple – and has a 9.56 percent return.

S&P Dow Jones Indices, a unit of McGraw Hill Financial Inc, rarely makes changes to the index it owns, and often only when forced to by a major corporate event, such as an acquisition of a component.

The last change was in September 2013, when Alcoa, Hewlett-Packard and Bank of America were replaced by Visa, Nike and Goldman Sachs in one of the biggest shake-ups in the index for some years.

That decision was triggered by the low stock prices of the three companies that were removed and by a desire to diversify the industry groups in the index, according to a statement from S&P Dow Jones Indices at the time.

According to S&P Dow Jones Indices' guidelines on its website, a stock "typically is added to the index only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors." Apple would certainly qualify on those criteria.

In addition, S&P Dow Indices says that "adequate sector representation within the indices is also a consideration in the selection process."

As of the end of January, 9.47 percent of the Dow was allocated to the technology sector, placing it fifth among the nine sectors that comprise the index. Given that technology makes up 19.9 percent of the broader S&P 500, that should also help Apple’s case. And given Apple has also more than earned its stripes as a consumer and media company it clearly has other claims on membership.

Before June last year, it would have been much more difficult to add Apple because pre-split, the stock was trading at such a high price – it reached $705 back in 2012.

The Dow is a price weighted index, which means a stock with a higher price has a greater influence on the index. By contrast, the S&P and Nasdaq indexes are weighted by market capitalization.

Many investors who tie their investments to a broad index will use the S&P 500 ($1.9 trillion of index funds) or the Nasdaq 100. But some do buy the Dow through vehicles such as the SPDR Dow Jones Industrial Average ETF, which has a market value of about $12.32 billion and is known as the Dow Diamonds. There are also leveraged funds that seek to double or even triple its gains, such as the ProShares UltraPro Dow30. — Reuters

Tags: appleinc, usstocks, dowjones