![]() ![]() Shares Outstanding Number of shares that are currently held by investors, including restricted shares owned by the company's officers and insiders as well as those held by the public. For companies with multiple common share classes, market capitalization includes both classes. Market Cap is calculated by multiplying the number of shares outstanding by the stock's price. Market Capitalization Reflects the total market value of a company. Earnings Per Share (TTM) A company's net income for the trailing twelve month period expressed as a dollar amount per fully diluted shares outstanding. "If I had to give you a top five," Johnson said, "it would probably be in this order: Alphabet, Meta, Netflix, General Mills and Starbucks.P/E Ratio (TTM) The Price to Earnings (P/E) ratio, a key valuation measure, is calculated by dividing the stock's most recent closing price by the sum of the diluted earnings per share from continuing operations for the trailing 12 month period. He wouldn't be surprised if these types of companies were added in place of 3M should the index be changed. Johnson says the absence of communication/media companies and food products companies are glaring holes in the index's current makeup. The question then turns to what companies are next in line for inclusion in the Dow. He said after the health care split, 3M could be in the bottom half of the S&P 500. "If you look through all of the Dow stocks, they all are in the top half of the S&P 500." Still, the Dow holds symbolic weight, and it brings extra analyst attention and institutional investment to the member companies.Ĭraig Johnson, chief market technician at Minneapolis-based Piper Sandler, said most of the Dow's blue-chip stocks are among the largest companies in the stock exchange. The S&P 500 is the more closely watched index as it represents a much wider swath of the economy. There are several other Dow indices that track utilities, transportation and international stocks. ![]() The Corporate Finance Institute writes that the index is changed "when one or more components experience financial distress that renders it a less important company in its sector (or) when there is a significant shift in the economy that needs to be reflected in the composition." economy has become dominated by services rather than manufacturing. The Dow Jones industrial average, created in 1896, began with 12 industrial companies and has grown and shifted composition as the U.S. ![]() "So if 3M is kicked from the index, that is an indication not necessarily of a troubled company but a company that is perceived to be troubled." "You see this with banking right now - more important than the hard numbers is psychology," Vogel said. Perception can also play an important role for who gets included on the index. By market capitalization it ranks 27th and by annual revenue it ranks 26th - and that's before 3M sheds about a quarter of its business in the planned spinoff. At the beginning of the year it was Walgreens and Verizon with the greatest potential to fall off the index."ģM now ranks among the smallest members of the Dow's industrial average. "Realistically, though, it's usually based on market cap - and changes are made in batches," said Julian Vogel, finance professor at San Jose State University. The index was most recently changed in 2020 when Amgen, Honeywell and Salesforce were added and Exxon Mobil, Pfizer and Raytheon were dropped.Īt the time, S&P Global said the move was in response to an Apple stock split and was meant to "help diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy." ![]() Since 3M was added to the index in 1976, the Dow's makeup has changed 22 times, including in 2012 when UnitedHealth Group, Minnesota's largest company, was added. Only Procter & Gamble - maker of Tide, Pampers and Olay - has been included longer among current members. "Any potential impacts on index constituents from a spin-off are evaluated by the Index Committee on a case-by-case basis."ģM has the second-longest current tenure on the Dow. "Changes in response to corporate actions and market developments can be made at any time," reads the official index methodology. The keepers of the Dow - owned and run by S&P Global - don't tip off their intentions ahead of any changes, which do not occur on any set schedule. ![]()
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