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Dow 30 adds Goldman Sachs, Nike and Visa

Rodney Brooks, John Waggoner and Matt Krantz
USA TODAY
  • Changes to 30-stock index were prompted by low stock price of three companies being dropped
  • The changes will be effective at the close of trading Friday%2C Sept. 20
  • Change is the first three-for-three adjustment since 2004

Goldman Sachs, Visa and Nike will be added to the Dow Jones Industrial Average, S&P Dow Jones Indices announced Tuesday. Out: Hewlett-Packard, Bank of America and Alcoa.

A Dow Jones news ticker in New York's Times Square carries headlines about the stock market.

The changes will take effect with the opening of trading on Monday, Sept. 23. Its level won't change when the new components are added.

The changes were prompted by the low stock price of the three companies set for removal and the index committee's desire to diversify the sector and industry group representation of the index.

It will be the first three-for-three change in the Dow since 2004, says David Blitzer, managing director and chairman of the index committee.

"We are removing three lowest-priced stocks and replacing them with stocks with higher prices," he said. Alcoa, which is trading at about $8, is the lowest-priced stock in the index, he said. This will bring down the weight of the other 27 companies in the index.

Unlike most indexes, the Dow is an average, and the higher a component's price, the greater the impact it has on the index. Stocks with low per-share prices become dwarfed by those with large per-share prices, reducing the effectiveness of the Dow to mirror the market. Had the changes been made at the start of the year, the Dow would have been up 16.1% through Monday's close rather than 14.9% with the current members.

Visa will now be the Dow's second-largest component, just behind IBM, and Goldman Sachs will be the third-largest component. Nike will weigh in at No. 18, just behind DuPont.

The additions were also made to better improve the sector representation of the Dow, according to S&P Dow Jones Indices. Nike adds to the Dow's consumer discretionary sector weighting. Visa is considered to be a technology company focused on payment networks, a corner of technology not represented before. Meanwhile, adding Goldman Sachs boosts the Dow's weighting in investment banking. Bank of America is a closer peer to another Dow member, JPMorgan Chase.

The additions and deletions will mean that a $1 price gain in any one component will equal a 6.5 point change in the Dow, vs. 7.7 points in the old Dow, according to Bespoke Investment Group.

The Dow was created by Charles Dow in 1896 and originally had 11 stocks. General Electric, added in 1928, is the oldest current Dow component.

Changes to the Dow are relatively rare. The last time any additions or removals were made occurred on June 8, 2009, when computer networking-equipment maker Cisco Systems replaced financial firm Citigroup.

All told, there were eight additions and eight deletion made to the Dow between 1999 and 2009. The newest stocks: insurer American International Group; drugmaker Pfizer; telecom Verizon; the just-ousted Bank of America; energy company Chevron; food company Kraft; insurer Travelers; and Cisco.

Stocks removed during that time: International Paper; General Motors; AT&T; Allied Chemical & Dye; photo firm Eastman Kodak; food company Altria; Citigroup; and American International. AIG was added in April 2004 and removed in September 2008.

Investors might wonder about how earnings season might be affected by the change. Alcoa's earnings report often marks the unofficial start of earnings season, in part, because it was a Dow component. "The composition of the Dow Jones Industrial Average has no impact on Alcoa's ability to successfully execute our strategy, and we remain focused on delivering shareholder value," the company said in a statement.

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