Apple (APPL, Financial) is all set to step up and replace AT&T Inc. (T, Financial) at the New York stock exchange. The technology giant will officially be replacing the telecom giant after the close of trading on March 18. This revelation has been confirmed by S&P Dow Jones Indices’ statement - a unit of MacGraw Hill Financial (MHFI, Financial), which currently owns the blue chip index. The change will take place March 19. This will be the first adjustment for the index since the rejigging in 2013, when Goldman Sachs (GS, Financial) replaced Alcoa (AA, Financial), Nike (NKE, Financial) replaced Bank of America (BAC, Financial), and VISA (V, Financial) replaced HP (HPQ, Financial).
Why the Replacement Now?
The Dow Jones’s decision to exclude AT&T, which has been part of the index since 1916, is a clear indication of how innovation in technology and communications has evolved. Apple’s inclusion in Dow Jones Indices is also recognition of the transformation of a small company Apple Inc., two decades back, into a US predominant consumer tech company.
It also represents the changing times and Dow Jones’s emphasis on inclusion of companies who can best represent the economy through its 30 blue-chip companies. However, experts say that it has been difficult to pick the 30 companies that would cover the entire US economy, but it will surely provide more credibility to Dow Jones Indices.
According to David M. Blitzer, MD and Chairman of the Index Committee, the timing of Apple’s inclusion to index was based on the two stock splits: Visa’s decision to split its stock into 4:1 on March 19 and Apple’s split in June 2014. Further, he added that “the recent split in Visa reduces the weight of technology in the DJIA making room for others such as Apple. Among the current constituents of the DJIA, AT&T's prices are the lowest, and therefore it can go." After the departure of AT&T, telecom sector will be represented by Verizon Communications (VZ, Financial).
Why was Apple Never Included Before?
Though Apple has been a hugely successful company, it was never included in the Dow Jones Indices before this. Dow Jones had a suitable reason for it too. Before Apple split, back in 2014, its share was trading at more than $600. This was a huge price, and it was understood that if Apple was included in the index, it would easily dominate the Dow Jones, because the index is price weighted. The stock split in 2014 brought its share prices down to around $120, making it a suitable choice to be included in Dow Jones.
Today, Apple is the most valuable company in the world as its increasing market cap currently exceeds $735 billion. In this fiscal year, Apple posted record-breaking quarterly revenue of $74.6 billion – the most profitable quarter for any company. Since the launch of its first iPhone in 2007, Apple's share prices have soared to 700%, making it the most valuable company – not only in the USA, but also in the rest of the world. The addition of Apple Inc in Dow Jones Indices is a clear indication that without Apple, the indices may not represent the US economy at all.
Concluding Thoughts
The Dow Jones Industrial Index is based upon a price-weighted average of 30 most valuable stocks traded on Nasdaq and New York Stock Exchange. The Index provides the investors an insight into the performance of the stock market. A few other important members of this index include Boeing (BA, Financial), Coca-Cola (KO, Financial), Cisco (CSCO, Financial), Disney (DIS, Financial), GE (GE), IBM (IBM) and Microsoft (MSFT). For the Apple investors and The Dow Jones followers this would be an interesting move to watch for since it is quite probable that Apple might dominate the course of movement of Dow Jones to a considerable extent.
