Question: The Dow Jones makes some changes doesn't it?

Lina Smythsen

Answer:

Dear Ms. Smythsen,

Yes, you are correct. The stocks in the Dow Jones Industrial Average do not remain the same. They could not because the index must reflect the overall market.

This past week, for example, two components of the Dow were changed -- adding Bank of America and Chevron Corp. and dropping Altria Group Inc. and Honeywell International.

These two changes go into effect at the opening of the market on February 19th.

It's interesting to note that these changes are the first in the 111-year-old index since April 2004. At that time, three stocks out of 30 were replaced.

Why were Altria Group & Honeywell dropped?

Honeywell is being removed because it's the smallest of the industrials in terms of revenue and earnings.

Altria, formerly Philip Morris, has been in the Dow since 1985. Last year, it spun off from Kraft Foods. It recently announced the forthcoming spin-off of Philip Morris. This will leave Altria a much smaller company.

The Dow Jones selection committee felt the financial industry was not represented as much as it should be and that the oil and gas segment, obviously of increasing importance in every country around the world, should have greater representation. Before the addition of Chevron, Exxon Mobil Corp. was the only oil and gas company in the Dow.

Note: Chevron has been in the industrial average twice before. The first time, as Standard Oil Co. of California, was from February 1924 to August 1925. The company re-joined The Dow in 1930, but was replaced on Nov. 1, 1999. The Chevron name was adopted in 1984.

About the Dow...

The Dow Jones Industrial Average was created by Charles H. Dow in May 1896. The original Dow consisted of only 12 stocks and was calculated by dividing the sum of the stock prices by 12.

This divisor has changed many times since, as stock splits have occurred and as components of the average were adjusted. Today, the managing editor of The Wall Street Journal, currently Marcus W. Brauchli, oversees the makeup of the Dow. Here is what Mr. Brauchli told the press:

"As usual when we make any change we review all the stocks. In doing so, we saw that the financials industry was under-represented - notwithstanding the current turbulence - and that the oil and gas industry's growing importance to the world economy called for another representative to join ExxonMobil Corp."

John A. Prestbo, editor of Dow Jones Indexes, said, "There are no pre-determined criteria for a stock to be added or deleted, though we intend that all components be established U.S. companies that are leaders in their industries. For the sake of continuity, composition changes are intentionally rare."

For Further Information

You'll find excellent (and easy-to-understand) information on all the Dow Jones Indexes on the company's website at: www.djindexes.com.

Good luck!

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