The SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA), the tracking exchange traded fund for the Dow Jones Industrial Average, got a little more exciting earlier this year when Apple (NasdaqGS: AAPL), the largest U.S. company by market value, joined the venerable blue-chip index.
However, some market participants believe the Dow needs even more refreshing and that refreshing should come by way of adding Alphabet (NasdaqGS: GOOG), Google’s parent company, and Amazon (NasdaqGS: AMZN), according to MarketWatch.
“Alphabet’s current market capitalization of $522.4 billion would make it the second biggest company in the Dow, behind Apple, while Amazon’s market cap of $314.4 billion would make it the fourth largest. The median valuation of the current Dow 30 companies is roughly $156 billion,” reports MarketWatch.
As many Dow followers and critics know, the issue for Alphabet and Amazon is not their respective market values. The companies are obviously large enough for the Dow. Rather, the issue is the Dow’s price weighting methodology.
Although Apple is the world’s largest company by market value, also making it the largest holding in an array of cap-weighted ETFs, the stock is not DIA’s largest holding due to the Dow’s aforementioned price-weighting methodology. Because of how the Dow and DIA weigh their components, Goldman Sachs (NYSE: GS) is the largest holding. [Apple is Coming to the Dow ETF]
With price tags over $739 and $664 respectively, Alphabet and Amazon would likely need to undergo significant splits before the Dow can consider adding these stocks. A bare minimum split would be 7-for-1 for each stock, which is exactly what Apple did months before S&P Dow Jones said the stock would be added to the blue-chip index.
Adding Alphabet and Amazon to the Dow would also affect the new Guggenheim Dow Jones Industrial Average Dividend ETF (NYSEArca: DJD). DJD, which debuted last week, weighs the 30 Dow stocks by yield, which works because all 30 current members are dividend payers. Neither Alphabet nor Amazon pay dividends and the companies have made no indications that dividends are a near-term reality for either.
SPDR Dow Jones Industrial Average ETF
