The recent stock split by Alphabet is opening the doors for e-commerce giant Amazon to join the Dow Jones Industrial Average. According to reports, Travelers (TRV) and Dow (ticker DOW) will likely lose their spot if Alphabet (GOOGL) and Amazon (AMZN) are added.
Amazon and Alphabet have been tipped as the best candidates to join the Dow Jones Industrial Average, given their profitability, size, prominence, and economic importance. Other companies vying to join the list include Berkshire Hathaway (BRKb)
It should be recalled that Alphabet and Amazon were ineligible to join the Dow Industrials until they implemented 20 for one stock splits. A move that pushed their share prices from as high as $2,000 to nearly $100. While Alphabet’s split happened on Monday, Amazon’s split occurred in June. With the recent stock split, Alphabet’s shares rallied by 0.45% to $114.34 on Thursday. On the flip side, Amazon stock rose by 1.5% and is now trading at $124.
Dow Jones criteria for adding stocks
The Dow Industrials is praised for its simple and old-fashioned price weighting, a tradition established in 1896 when the index took its current form. Back then, it was calculated using pen and paper.
The Dow Industrials index moves according to absolute price changes of individual stocks. With this, highly-priced stocks, including those of Goldman Sachs Group (GS), UnitedHealth Group (UNH), and Home Depot (HD), have an outside influence. This is quite different from the S&P 500 and other popular indexes that are weighted by the market value of individual constituents.
Before splitting their stocks, Amazon and Alphabet would have overwhelmed other stocks listed on the Dow Industrials.
What’s to come ahead?
There isn’t a definite timetable for adding or removing stocks to the Dow Industrial. Note that the last change happened two years ago, precisely in 2020. Before the 2020 changes, there was another addition in 2018.
There is a likelihood that the S&P Dow Jones index, which controls the index, could be changed this year. Until then, analysts can only speculate on the companies making the cut and when that would happen.