Does Apple want to be in the Dow Industrial Average 30?

“For several years investors have been speculating and demanding that Apple (AAPL) become a member of the Dow,” Options Calling writes for Seeking Alpha. “Because of the way the Dow operates, Apple previously had issues that would not allow the company to be considered by the Dow Jones board. The reason is that the Dow is a price-weighted measure, which means the bigger the stock price, the larger the impact it has on the Dow.”

“Visa (V) is currently the only stock in the Dow with a price over $200/share,” Options Calling writes. “However, Apple’s split will occur June 2nd, and the 7-to-1 split, as of today’s value, would bring the shares price to $87 per share. This price would allow Apple, a company that had the largest market cap in 2012, to make a play for the Dow, becoming one of the 30 companies that make up the Dow Jones Industrial Average.”

“While some incremental gains could come to Apple through a Dow affiliation, evidence shows that the ETFs and mutual funds that have to track and invest in Dow Components is far less,” Options Calling writes. “For every $1 that is tied to Dow components, there is $50 that follows S&P 500. Thus proving that investors benefit more for having a company in the S&P than the Dow, from an ETF and mutual fund investment perspective.”

“So now that we realize there is a small, if not incremental, financial advantage for Apple being added to the Dow, the question turns to whether the keepers of the Dow Jones Industrial average need Apple more than Apple needs them,” Options Calling writes. “It’s important to note that the function of the Dow is be an excellent indicator of the U.S. economy and adding Apple, which earned $38 billion over the past 12 months would increase the Dow’s ability to gauge the U.S. economy in a much more efficient way.”

Read more in the full article here.

16 Comments

      1. Hmmm. I can write and speak whatever I want whenever I want. But I’m different from most bletherers as I back up what I write with research, knowledge and information. There is ZERO reason for Apple to give a damn about the antiquated Dow. Now, if you have some useful information to the contrary, please provide it. Otherwise, you’re wasting everyone’s time. That of course is nothing new around here. So don’t feel lonely.

    1. I beg to differ. Of course Apple wants to be in the Dow. The author of this article is an idiot. “for every $1 in the Dow, there’s 50 in the S&P” – what a genius. That $50 in the S&P is – surprise! – spread over 500 companies. That would weight it at 10 cents per company, if spread evenly. that dollar in the Dow spreads across 30 companies, so that works out, at the same even spread, to 3.3 cents per company. So, getting signed up for the Dow only gets you one-third as much capital inflow into your stock as joining the S&P 500.

      That’s still a whomping big pile of money. Having that many investors / fund managers have to buy in to be tracking with the Dow cannot but do good things for the stock price, and will also help to reduce volatility in both ownership and pricing. It’s win / win / win. Apple, long-term shareholders, and the Dow all go home happy.

      1. Your analysis is reasonable as a general indicator and I concur with your conclusion, although there is a price-weighted effect in the Dow which would have some effect on the spread of investment dollars. Overall, I don’t believe that Apple is particularly concerned about the Dow one way or the other. It could help to stimulate AAPL in the short term and stabilize it in the longer term, but only to a modest degree.

        There might be some reticence to include AAPL in the Dow. The DJIA naturally prefers long term stability and low churn in its representative components so that its measure has relevance as a trending indicator of overall U.S. economic performance. Over the past 16 years (and, particularly, over the past seven years) the company has shot up from relatively modest size into an international juggernaut. The analyst naysayers keep blogging that Apple can and will go the other way just as quickly, which seems rather unlikely to most of us. But that analyst FUD may scare off the managers of the DJIA. On the plus side for the Dow, Apple issued a dividend and hasalready raised it twice, which is an indicator of a stable company that has evolved from an early high growth phase into a sustainable long term growth phase.

        Personally, I am not concerned about this either way. If the Dow chooses AAPL, then great. If not, then no worries – Apple is in control of its own future and will stand or fall based on its ability to execute its vision. Inclusion (or not) in the Dow will not change that.

    2. DJIA has been THE benchmark of American economy practically forever. More importantly, it CONTINUES to be that benchmark, regardless of many other indices out there. Having your company included in the DJIA means being included in the perceived elite of the elite. So, from that perspective, DOW inclusion is most certainly appealing.

      The argument against inclusion in DJIA has nothing to do with how old the DOW is. From Apple’s perspective, there aren’t any major downsides; inclusion in major indices tends to reduce volatility (as was said below).

      It is another question altogether if DOW wants to include Apple, and it has to do with DOW’s purpose. If it is meant to represent American economy, then it makes little sense to include Apple, even if it IS the largest market cap. As far as the economy is concerned, Apple has been an extreme outlier over the past fifteen years, growing profits far faster than the economy. And especially during the recession, when the rest of the economy (and DOW companies) all posted losses (except Exxon-Mobile…), Apple kept posting record after record quarters. If Apple’s record profit making track continues, it would be improper to include AAPL in DJIA, if the benchmark is to closely reflect the actual, real growth of American economy.

      1. Study what the DJIA actually is and figure out why it still has ANY relevance in the modern world. I can’t. Neither can many economists and investors. It’s time for it to die in favor of actually useful measures of stock markets.

        1. While you and other economists are busy looking for other “actually useful measures” of stock markets, the world will continue to reference DJIA as THE benchmark of American economy, for better or for worse. Whether you like it or not, this is the reality of today, and will likely remain reality for a long time to come.

  1. Seeing as Apple is buying back its stock, I don’t think Apple really cares about being part of the Dow. Eventually Apple will simply buy back all of its shares and go private, simply issuing bonds if it wants to raise capital, and telling Wall Street to go pound sand.

    1. One hopes that is their intention… I think it was Jobs’, but I have my doubts about the board, who ultimately make these sort of decisions. They were putty I. jobs’ hands,, and whilst I have much faith in Apple’s leadership to remain a profitable, innovative company, I don’t see their management having the ability to lead the board like Jobs had.

    2. Buying back stock with shareholder’s money only reduces the number of outstanding shares, increasing the value of the remaining shares. To go private, some outsider would have to purchase those public shares, or an insider would have to borrow the funds to purchase those shares. There’s no way Apple can use its shareholders money to go private.

      1. Well, technically, they could do exactly that, assuming they have enough money to do it. At present, market cap is about half a trillion. Their current war chest is estimated at over $160B, so theoretically, they now have enough money to buy up close to 1/3 of all outstanding shares for cash.

        Hypothetically speaking, if their net cash reserves continue to grow at the same rate as they had for the past four years, in less than ten years, they would have enough of it to buy up all outstanding shares (assuming the shares grow at the same rate they did for the last four years). Obviously, these are quite wild assumptions.

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