Life After Dow Jones for General Electric

SMITH BRAIN TRUST – Although General Electric had the longest continuous presence of any company on the Dow Jones Industrial Average, its ouster from the index this week after 111 years wasn’t an altogether surprising event, says David Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business.

It’s a result of a long, painful decline at the industrial conglomerate. It’s an end of a chapter, Kass says, not the end of the story. “It is insignificant to both GE and the DJIA," he says. "It is symbolic of its decline in market value over the past 18 years.”

GE’s troubles, in large part, were self-inflicted, Kass says, having little to do with disruption by technological change, and much to do with a spate of unfortunate managerial decisions. A similar company, Honeywell, has thrived as GE declined, Kass notes.

Now GE CEO John Flannery must try to turn the company around by “investing in businesses where returns on capital exceed the cost of capital and exiting those where returns on capital are below the cost of capital,” Kass says.

GE is the latest company to leave the Dow, but by no means the first. The components of the index have changed 51 times since its beginning on May 26, 1896. Digging into his laptop, Kass offers this list of recent companies to break up with the Dow.

On April 8, 2004, American International Group Incorporated, Pfizer Incorporated, and Verizon Communications Incorporated replaced AT&T Corporation, Eastman Kodak Company, and International Paper Company.

• On February 19, 2008, Chevron and Bank of America replaced Altria Group and Honeywell. Chevron was previously a Dow component from July 18, 1930, to November 1, 1999. During Chevron's absence, its split-adjusted price per share went from $44 to $85, while the price of petroleum rose from $24 to $100.
• On September 22, 2008, Kraft Foods replaced the American International Group (AIG) in the index.
• On June 8, 2009, General Motors and Citigroup were replaced by The Travelers Companies and Cisco Systems, the latter of which became the third company traded on the NASDAQ to be part of the Dow.
• On September 24, 2012, UnitedHealth Group replaced Kraft Foods following Kraft's split into Mondelēz International and Kraft Foods Group.
• On September 20, 2013, Goldman Sachs, Nike and Visa replaced Alcoa, Bank of America and Hewlett-Packard. Visa replaced Hewlett-Packard because of the split into HP Inc. and Hewlett Packard Enterprise.
• On March 19, 2015, Apple replaced AT&T, which had been a component of the DJIA since November 1916. Apple became the fourth company traded on the NASDAQ to be part of the Dow.
• On September 1, 2017, DowDuPont replaced DuPont. DowDuPont was formed by the merger of Dow Chemical Company with DuPont.
• On June 26, 2018, Walgreens Boots Alliance will replace General Electric, which had been a component of the Dow since November 1907, after being part of the inaugural index in May 1896 and much of the 1896 to 1907 period.