Alphabet, the parent company of Google, will join the Dow Jones Industrial Average on June 29, before trading begins. Its Class A shares (GOOGL) will replace Verizon Communications in the 30-stock index. This adjustment marks another significant change for the Dow, which has undergone more than 50 modifications since its inception on May 26, 1896.
The Dow Jones Industrial Average, unlike the market-cap-weighted S&P 500 and Nasdaq Composite, is weighted by share price. This weighting methodology means a company’s influence within the index is determined by its stock price, not its overall market capitalization. For example, Nvidia, despite being the largest publicly traded company by market cap at $4.85 trillion, ranks as the 19th most influential component in the Dow due to its $200 share price.
Verizon’s removal stems from two primary factors. The company held the second-lowest share price in the Dow, at $46.73 as of June 23. This low share price meant Verizon was responsible for only 287.7 Dow points, limiting its sway within the index, which closed at approximately 51,667. Its minimal impact made it expendable in the committee’s view.
Another issue for Verizon was its stock performance since joining the Dow on April 8, 2004. Excluding dividends, Verizon shares gained only 39.5% during this period. S&P Dow Jones Indices, the committee responsible for index adjustments, favors companies that represent the U.S. economy and demonstrate long-term growth. Verizon’s performance did not align with this preference.
Alphabet’s inclusion brings a blend of technology and communications to the Dow. The company holds a virtual monopoly in internet search through Google. Its addition places it alongside other trillion-dollar market capitalization companies already in the Dow, such as Nvidia, Microsoft, and Amazon.
The change reflects the ongoing evolution of the U.S. economy, moving from its industrial roots to a more diverse, technology-driven composition. The Dow, initially a 12-stock, industrial-focused index, now comprises 30 multinational businesses. These adjustments aim to keep the index representative of leading American enterprises.
The long-term impact of Alphabet’s entry on the Dow’s overall performance remains to be seen. The index committee will continue to monitor the economic representation and individual company performance of its components. Future adjustments will likely follow as the U.S. economy and its leading companies evolve.
Investors will observe how Alphabet’s presence influences the Dow’s movements and whether its higher share price contributes to greater index volatility or stability. The committee’s criteria for inclusion and exclusion will guide future decisions, ensuring the Dow maintains its relevance as a key economic indicator.