General Electric (G.E.), the last original member of the Dow Jones Industrial Average, was dropped from the blue-chip index for the first time in 110 years and replaced by the Walgreens Boots Alliance drugstore chain. The Tuesday night decision was a fresh blow to General Electric, the iconic maker of light bulbs and jet engines, which has stumbled badly in recent years, reports The New York Times.
Last year, John L. Flannery, the company’s new chief executive, warned that the power-generation unit was reeling. G.E. cut its dividend for only the second time since the Great Depression. In January, G.E. surprised investors by taking a big charge and setting aside $15 billion over seven years to pay for obligations held by GE Capital, the company’s financial services unit, mainly on long-term care insurance policies.
Over the last year, G.E.’s shares have fallen 55 per cent, compared with a 15 per cent gain for the Dow. G.E., which closed on Tuesday at $12.95, has the lowest share price of any of the index’s 30 components. S.&P. Dow Jones Indices – which owns the Dow – suggested that the slide in G.E.’s stock price contributed to the decision to remove the company from the index, where it had been a member continuously since November 7, 1907.
The Dow is a price-weighted index, which means higher-priced stocks have a greater influence on its direction. “The low price of G.E. shares means the company has a weight in the index of less than one-half of one percentage point,” The New York Times quoted David Blitzer, chairman of the index committee at S.&P. Dow Jones Indices, as saying.
“Walgreens Boots Alliance’s share price is higher, and it will contribute more meaningfully to the index.” The move also is freighted with economic symbolism, according to Blitzer. With the inclusion of Walgreens Boots, the index “will be more representative of the consumer and health care sectors of the US economy”, he added.
Following G.E.’s departure from the index, the company with the longest presence in the Dow will be Exxon Mobil, whose corporate predecessor, Standard Oil of New Jersey, joined the Dow in 1928, according to S.&P. Dow Jones Indices. Alphabet, Amazon, Apple, Facebook and Microsoft are the five most valuable companies in the US today.