General Electric is being replaced by Walgreens Boots Alliance Inc. as one of the 30 components of the 122-year-old Dow Jones Industrial Average.
The change brings and end to the tenure of the oldest and only remaining original component of the blue-chip focused Dow, and caps a decisive downtrend for embattled GE GE, -1.89% . But the planned move also has consequences for the price-weighted Dow average DJIA, -1.15% which has become one of the most closely watched equity benchmarks since its creation in 1896, then-comprised of just 12 components.
For one, the addition of Walgreens Boots Alliance Inc. WBA, +0.72% adds shares of a fourth company to the consumer-staples category, representing businesses that sell staples like cereal, toothpaste and razors, among other household goods. Presently, the blue-chip benchmark’s consumer-staples group comprises Walmart Inc. WMT, +0.73% , Procter & Gamble Co. PG, +0.65% and Coca-Cola Co. KO, +0.11% .
Secondly, the change marks the Dow’s first alteration since September, upon the consummation of the merger between Dow Chemical Co. and then-Dow component DuPont & Co., creating the entity DowDuPont Inc. DWDP, -2.11% .
Most important, the addition of Walgreens stock means that the so-called divisor of the Dow will change.
The so-called divisor, or in this case multiplier, is the figure used to determine the influence of any of the 30 components that make up the benchmark.
The Dow isn’t exactly an average of its components, as its name might imply; instead, the value of the Dow is determined by calculating the sum of the share price of its members using a divisor. Presently, that divisor stands at 0.145233969. That means any $1 move in any one of the Dow’s components equates to a 6.89-point swing in the average. The divisor will be changed just before the Dow’s opening on June 26.
Here’s when some past divisor changes have occurred:
Jan 1, 2002: 0.144521
June 3, 2002: 0.14445222
Aug. 21, 2002: 0.14418073
Nov. 19, 2002: 0.14585278
Feb. 18, 2003: 0.14279922
Aug. 20, 2003: 0.14249417
Sept. 30, 2003: 0.13500289
April 8, 2004: 0.14090166
June 6, 2004: 0.13561241
Nov. 15, 2004: 0.13532775
June 13, 2005: 0.13033708
July 14, 2005: 0.12560864
Oct. 3, 2005: 0.12493117
Nov. 20, 2006: 0.12482483
April 2, 2007: 0.123051408
June 13, 2007: 0.123017848
Feb. 19, 2008: 0.122834016
April 1, 2008: 0.122820114
Sept. 22, 2008: 0.125552709
June 8, 2009: 0.132319125
July 2, 2010: 0.132129493
Aug. 13, 2012: 0.12914682
Sept. 24, 2012: 0.130216081
Sept. 23, 2013: 0.155715905
March 19, 2015: 0.14985889
July 1, 2015: 0.149677273
Dec. 24, 2015: 0.146021281
Sept. 1, 2017: 0.145233969
According WSJ Market Data Group, Walgreens’ shares would rank it as the seventh-least-influential Dow component, based on its closing price as of June 19.
|GE (to be removed June 26)||General Electric Co.||$12.95|
|PFE||Pfizer Inc. PFE, +0.17%||$36.22|
|CSCO||Cisco Systems Inc. CSCO, -0.88%||$43.82|
|VZ||Verizon Communications Inc. VZ, +2.19%||$48.50|
|INTC||Intel Corp. INTC, -0.54%||$52.93|
|MRK||Merck & Co., Inc. MRK, +0.07%||$61.03|
|WBA||Walgreens Boots Alliance Inc.||$64.61|
Moreover, the consumer-staples names have exacted a 227-point year-to-date toll on the Dow, after adding some 287 points to blue chips in 2018 (see table below).
|Company||YTD contribution to the Dow||2017 contribution to the Dow|
Consumer staples have mostly underperformed this year because that sector has struggled to pass on rising costs to customers and are contending with the rise of Amazon.com Inc. AMZN, +0.64% , which has made exerting pricing power on companies that make household goods challenging.
Consumer staples, as measured by the exchange-traded Consumer Staples Select Sector SPDR ETF XLP, +0.53% , are down 10.3% so far this year and off about 9.2% over the past 12 months, according to FactSet data.
Still, the performance of Walgreens, particularly as funds that track the Dow are compelled to buy shares of the company to reflect the coming change, may outstrip that of embattled GE.
Walgreen’s shares are down 11% year to date and off about 19% over the past year, compared with GE’s stock, which has lost 26% in the first six month of the year and 55% in the past 12 months.
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