The about to be splitting of Apple shares via a reverse four for one division has triggered a historic change in the Dow Jones average – oil giant Exxon Mobil is out, as is drug group, Pfizer and defence manufacturer Raytheon Technologies.
Cloud-based customer relations management software group Salesforce replaces Exxon Mobil in something of a surprise, biotech drugmaker, Amgen replaces Pfizer and industrial group, Honeywell will replace Raytheon.
Apple split will have a dramatic impact on the ranking of the companies in the 30 stock Dow. Apple will fall from Number one to Number 17 because the Dow is a price-weighted index). The top three stocks will become UnitedHealth Group Inc., Home Depot, and Amgen in that order.
The ousting of Exxon is a historic move as it has been a Dow member for 92 years. It joined in October 1928 (a year before the Great Crash), when it was called Standard Oil of New Jersey. For decades the company was one of the 10 most valuable publicly traded companies, and for six straight years—from 2006 through 2011—it was the most valuable company in terms of market value.
S&P Dow Jones said the changes were “prompted” by Apple’s four for one split which happens after the close this Friday (Ie from trading next Monday) will reduce the index’s tech-sector weighting in the Dow, hence the rebalancing.
“The announced changes help offset that reduction,” S&P Dow Jones said in a statement. “They also help diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy.”
Apple joined the Dow back in 2015 not long after a seven for one stock split.
“The changes won’t disrupt the level of the index,” S&P Dow Jones said in a statement. “The divisor used to calculate the index from the components’ prices on their respective home exchanges will be changed prior to the opening on Aug. 31, 2020.”
“The changes won’t disrupt the level of the index,” S&P Dow Jones said in a statement. “The divisor used to calculate the index from the components’ prices on their respective home exchanges will be changed prior to the opening on August 31, 2020.”
While that is true, American market analysts point out that there is another, very good reason, for Exxon Mobil to be punted – underperformance. Its shares traded for more than $US104 in June 2014, against $US41 today. Even taking dividends into account, it has underperformed the Dow since 2014 by 21%.
The last venerable US company to be punted from the Dow was General Electric back in 2018. It has underperformed the Dow since then at an annual rate of 21% while the Dow has risen at an annual rate of 9%.
Apple shares closed Tuesday at $US499.30 valuing it at $US2.15 trillion. It hit an all-time high of $US515.14 last Friday in trading. If the $US500 level holds, the theoretical value of the new shares post-split will be around $US125.
