Walgreens Boots Alliance drugstore chain replaced the last original member of the Dow Jones industrial average - General Electric, as the latter was excluded from blue-chip index earlier in the week.
General Electric has been facing a series of problems in recent times and this development adds to that list. Warnings about the bad states of the power-generation firm was issued last fall by John L. Flannery, chief executive of the company. Since the Great Depression, the company was forced to cut its dividend for the second time in its history because of the problems. And in January this year, in a surprise move, $15 billion was set aside by the company to account for payments of obligations for its sister concern and its financial services arm GE Capital, primarily because of long-term care insurance policies.
And compared to a 15 percent gain for the Dow, the share so the company has seen a 55 per cent fall in value since the last one year or so. The company posed the lowest share price for any of the 30 components of the index before it was dropped from the Dow at $12.95.
The decision to remove GE from the index was primarily taken because of the drop in the stock prices of the company, said S. & P. Dow Jones Indices, owner of the Dow. GE has been an uninterrupted member of the index since 1907. The direction that Dow takes is influenced bythe higher priced stocks because it is a price-weighted index.
“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,” said David Blitzer, chairman of the index committee at S. & P. Dow Jones Indices. “Walgreens Boots Alliance’s share price is higher, and it will contribute more meaningfully to the index.”
There is also economic symbolism in the decision. Blitzer said that the index “will be more representative of the consumer and health care sectors of the U.S. economy” by the inclusion of Walgreens Boots.
A change in the economic composition of the United States is indicative of the dropping of the G.E. The US industry had shifted away towards services like technology, finance and health care from industry based one a long time back
The decision also marked a milestone for General Electric. The company was the last remaining original member of the index when it was first introduced in 1896.
G.E. was equivalent to the modern-day technology stock back in the 1890s because it was formed with the merger of Thomas Edison’s electric companies with a rival. And the index itself was heavily tilted towards heavy and growth oriented industries of that time such as railroads. GE has often bene identified to be an example of American Capitalism during the more than 120 years. G.E. has bene on occasions even become the most-valuable American company in terms of market value as recently as the 1990s.
(Source:www.nyt.com)
General Electric has been facing a series of problems in recent times and this development adds to that list. Warnings about the bad states of the power-generation firm was issued last fall by John L. Flannery, chief executive of the company. Since the Great Depression, the company was forced to cut its dividend for the second time in its history because of the problems. And in January this year, in a surprise move, $15 billion was set aside by the company to account for payments of obligations for its sister concern and its financial services arm GE Capital, primarily because of long-term care insurance policies.
And compared to a 15 percent gain for the Dow, the share so the company has seen a 55 per cent fall in value since the last one year or so. The company posed the lowest share price for any of the 30 components of the index before it was dropped from the Dow at $12.95.
The decision to remove GE from the index was primarily taken because of the drop in the stock prices of the company, said S. & P. Dow Jones Indices, owner of the Dow. GE has been an uninterrupted member of the index since 1907. The direction that Dow takes is influenced bythe higher priced stocks because it is a price-weighted index.
“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,” said David Blitzer, chairman of the index committee at S. & P. Dow Jones Indices. “Walgreens Boots Alliance’s share price is higher, and it will contribute more meaningfully to the index.”
There is also economic symbolism in the decision. Blitzer said that the index “will be more representative of the consumer and health care sectors of the U.S. economy” by the inclusion of Walgreens Boots.
A change in the economic composition of the United States is indicative of the dropping of the G.E. The US industry had shifted away towards services like technology, finance and health care from industry based one a long time back
The decision also marked a milestone for General Electric. The company was the last remaining original member of the index when it was first introduced in 1896.
G.E. was equivalent to the modern-day technology stock back in the 1890s because it was formed with the merger of Thomas Edison’s electric companies with a rival. And the index itself was heavily tilted towards heavy and growth oriented industries of that time such as railroads. GE has often bene identified to be an example of American Capitalism during the more than 120 years. G.E. has bene on occasions even become the most-valuable American company in terms of market value as recently as the 1990s.
(Source:www.nyt.com)