GE is Being Dropped From the Dow 30—What Happened to Others Who’ve Been Cut?
For all the recent company setbacks, this may be the most embarrassing for General Electric.
The Dow Jones Industrial average is dropping General Electric this week after being included for over 111 years. Indeed, GE was an original member of the Dow 30 which started in 1907. There’s plenty of blame to go around for GE’s business failures over the past 20 years; The pressure from various poor investments and business sales boiled over in 2018, when the CEO was finally replaced. This latest news has pushed share prices down to 2008-2009 financial crisis lows.
Investors are probably asking if being removed from the famous index is bad for future share prices.
Here’s some historical context on stocks and the indices: Like the S&P 500, The Dow 30 stocks are discussed and voted on by a committee. While the DJIA has many excellent attributes, one of its biggest criticisms stems from the fact that it is a price-weighted index. This means that each company is assigned a weighting based on its stock price, rather than market capitalization (or total company value).
There is a long track record changes to the index. For example, AT&T was dropped from the index in 2004, only to be added back in 2005 upon a merger, then dropped again in 2015. Here’s a look at some notable names who were recently dropped, with their shareholder return since:
*Source: https://dqydj.com/ stock return calculator as of 06/26/2018
It appears that for these companies, being dropped from the Dow didn’t necessarily mean they were headed for bankruptcy. In fact, most were able to turn their profitability around and grow shareholder returns at reasonable rates.
How will GE fair? We’ll have to wait and see whether they can spark a comeback.