If you want to consider stocks with a long track record, consider the Dow Jones Industrial Average (DJIA). It was initiated in May 26, 1896. Now that’s a long track record. Made up of only 30 stocks, it is the most quoted, most publicized market index in the world. As Dow stocks go, so goes the market.
Dow stocks are not just industrials
The index is calculated every two seconds during market hours, but regardless of the word “Industrials” in the name, many stocks included in the DJIA are far from manufacturers. Marquee companies include Visa, IBM, Goldman Sachs and Chevron.
In fact, financial service firms comprise nearly one-quarter of the companies in the Dow. Industrials rank second, with a 19% presence in the index. Other sectors represented in the Dow Industrials include consumer services (13%), technology (11%), health care (10%), oil and gas (9%), consumer goods (8%), telecommunications (3%) and basic materials (3%).
The DJIA excludes utilities and transportation stocks because there are Dow indices for those sectors, as well.
Dow stocks represent the finest companies in America. Many have been in business for decades and most pay income to investors in the form of stock dividends. These “bellwether” stocks are also referred to as “blue chip stocks.”
Why Google can’t be a Dow stock
The Dow Industrials is a price-weighted average. In other words, the one-share value of each of the stocks in the index, combined, is divided by 30. For example, if you had four stocks in an index with values of 10, 20, 50 and 100, you would divide by 4. The index average would be 45 (180 divided by 4).
However, if you took the current share price of each of the Dow stocks, added them up and then divided by 30, you wouldn’t get the current Dow Industrials index price. Why? Some of the Dow stocks have split over the years, and the index has been adjusted for the change in share price.
(A stock split increases the number of available shares of stock, but the price is lowered so that the total value of all issued stock is the same. For example, a $50 stock with 100 shares issued splits to $25, and now has 200 shares available. It still has $5000 worth of stock issued, also known as the company’s market capitalization.)
The Dow Industrials price-weighted average allows higher priced stocks to have more impact on the index overall. That’s one reason high-priced stocks like Google can’t be a part of the Dow. Its price-weighted presence would account for almost one-third of the DJIA index value.
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