Google parent company Alphabet will join the Dow Jones Industrial Average (DJIA) when the U.S. stock market opens on Monday, June 29. Alphabet will replace Verizon Communications Included in the 30 Dow stocks. The change means the Dow will have more exposure to technology and digital businesses.
Alphabet is the parent company of Google and YouTube, but it also has businesses in many other areas. The company is involved in online advertising, cloud computing, artificial intelligence (AI), hardware, self-driving cars and healthcare technology. S&P Global said joining Alphabet would make the Dow better represent the fast-growing part of the U.S. economy.
Why Alphabet Joins the Dow Jones Indexes
S&P Global also said Alphabet has a larger market capitalization, higher stock price and broader business than Verizon, making it the stronger communications services company in the Dow. Only Alphabet’s Class A shares will be included in the Dow Jones Index, as Kiplinger.
Alphabet’s Class C shares (ticker: GOOG) will not be included in the Dow Jones Indexes. Verizon has been a Dow component since 1984 but has been removed from the index. Kiplinger noted that this continues a trend of established telecom companies leaving the Dow Jones and moving toward technology companies.
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How the Dow Jones Index Works
A similar change occurred in 2015, when apple Replace AT&T in the Dow Jones Index. S&P Global said Verizon’s impact on the Dow was minimal because its stock price is relatively low. The Dow Jones is a price-weighted index, meaning companies with higher share prices have a greater impact on the index than companies with lower share prices. Because Verizon’s stock price is low, it only accounts for about 0.5% of the Dow Jones Index.
Alphabet Stock and Dow Impact
Experts say joining the Dow Jones is mostly a symbolic achievement rather than something that will dramatically change Alphabet’s business. Kiplinger said the S&P 500 is the main benchmark used by investors to track the U.S. stock market. About $12 trillion is invested in funds that track the S&P 500, making the index far more important to investors than the Dow.
The Vanguard S&P 500 ETF (VOO) is the world’s largest ETF, with more than $1.7 trillion in assets under management. By comparison, the SPDR Dow Jones Industrial Average ETF (DIA), which tracks the Dow, has only about $43 billion in assets under management. Although Alphabet is one of the world’s largest companies, it won’t dominate the Dow Jones because the index is based on share price rather than market capitalization.
At its current share price, Alphabet’s impact on the Dow would be roughly similar to Sherwin-Williams’. With Alphabet’s addition, the Dow will include many of the largest technology and communications companies. These companies include Apple, Amazon, Nvidia, MicrosoftSalesforce, Cisco Systems and IBM, as well as Alphabet.
