DOW News: AT&T OUT, Apple IN

The Dow Jones Industrial Average (DJIA) is made up of thirty large-cap American stocks that the Wall Street Journal considers to represent the stock market best. There have been 53 changes to the Dow components since its creation in 1896. The last change in the Dow was in September 2013 when Goldman Sachs, Visa, and Nike replaced Bank of America, Alcoa, and Hewlett-Packard. AT&T had been a part of the DJIA since November 1999, but Apple replaced the original iPhone carrier on March 19.

The replacement by Apple is somewhat ironic for AT&T because it was AT&T’s exclusive relationship with Apple that drove sales in recent years. Even though AT&T’s exclusive rights to iPhone sales ended in 2011, the stock was not suffering. AT&T may have been hovering around its 52-week low, but for the past two years it had been holding at highs not seen since around 2009. Rather than being dropped from the index for poor performance, portfolio re-balancing within the Dow drove the change.

For years many people wondered why Apple was not a part of the DJIA. As one of the most influential technology companies in the world, Apple surely deserved a place among these thirty companies. Yet, that success was what kept Apple from being a member of the Dow. One share of Apple stock cost around $600. That was far above the average stock price of any Dow component. Since the Dow is a price-weighted index, Apple would have dominated all of the other twenty-nine stocks. The index would not represent the diversified United State stock market. A 7-for-1 stock split last year, however, dramatically reduced Apple’s price per share to under $100.

Visa, another Dow component, also decided to issue a stock split. The 4-for-1 stock split resulted in an underweighting of the information technology sector in the DJIA and created an opening for Apple. With its stock price finally in line with the other Dow components, there were no more hurdles to its addition in the index.

AT&T and Verizon both represented the telecom sector in the Dow. Verizon, however, has the higher market cap, higher stock price, and is trading near the middle of its 52-week price range. All of those factors made Verizon a better candidate than AT&T for staying in the Dow. Verizon is the largest wireless provider in the United States and has been selling the iPhone since 2011.

Jonah Engler is a successful entrepreneur, investor, franchise owner and coffee lover who hails from New York City.