Dow Jones Industrial Average (DJIA)

Dow Jones Industrial Average (DJIA) Index Explained

Along with the S&P 500 index, it is one of the most-watched stock market indexes in the world.  

The Dow Jones Industrial Average index was created by Charles Dow along with his business partner Edward Jones and was created to serve as a measure for the broader U.S. economy.  It is a price-weighted index tracking 30 large, blue-chip stocks trading on the NYSE and Nasdaq. 

Founded in 1896, the Dow Jones Industrial Average is the second oldest U.S. market index.

Calculating the DJIA price

The Dow Jones Industrial Average is the sum of the price of one share of stock for all the stocks included in the index divided by the Dow divisor (0.15172752595384 as of 12/27/2021).  

The mathematical formula for the Dow Jones Industrial Average price is:

             Sum (Component stock prices) / Dow Divisor

DJIA Company Selection

Changes to the DJIA are made as needed.  The index is re-evaluated from time to time to replace companies no longer meeting the listing criteria with ones that do.   Changes to the DJIA are precipitated by market developments and corporate actions like spin-offs.

A committee made up of 2 representatives from The Wall Street Journal and 3 from S&P Global, together, decide after evaluating companies and comparing the index to the broad market.

A stock must be a non-transportation or non-utility company in the S&P 500 to be considered for the DJIA.  According to S&P Global, the DJIA is “not governed by quantitative rules.”  S&P Global, which runs both the Dow and the S&P 500, indicates the rules for the DJIA are far more vague than the S&P 500 and says, “A stock is typically added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors.” 

Other rules the committee uses is that the company must be headquartered and incorporated in the U.S. and have a plurality of its revenue from the country.  A candidate company must also help the index maintain its desired exposure to the sector.

You can check out the beginner's guide to stock investing  to learn more about investing. 

30 DJIA Companies as of January 2022

DJIA companies included as of January 2022 in alphabetic order:

Dow Jones Industrial Average Components
Company	Symbol	Year Added
3M	MMM	1976
American Express	AXP	1982
Amgen	AMGN	2020
Apple Inc.	AAPL	2015
Boeing	BA	1987
Caterpillar	CAT	1991
Chevron	CVX	2008
Cisco Systems	CSCO	2009
The Coca-Cola Company	KO	1987
Dow Inc.	DOW	2019
Goldman Sachs	GS	2013
The Home Depot	HD	1999
Honeywell	HON	2020
IBM	IBM	1979
Intel	INTC	1999
Johnson & Johnson	JNJ	1997
JPMorgan Chase	JPM	1991
McDonald's	MCD	1985
Merck & Co.	MRK	1979
Microsoft	MSFT	1999
NIKE	NKE	2013
Proctor & Gamble	PG	1932
Salesforce	CRM	2020
The Travelers Companies	TRV	2009
UnitedHealth Group	UNH	2012
Verizon	VZ	2004
Visa	V	2013
Walmart	WMT	1997
Walgreens Boots Alliance	WBA	2018
The Walt Disney Company	DIS	1991

Final Thoughts on DJIA

The Dow Jones Industrial Average tracks 30 blue chip stocks from the U.S. market that are chosen by a committee to represent the larger U.S. economy.  It is one of the most watched market indexes along with the S&P 500.  

Founded in 1896 by Charles Dow and Edward Jones, the DJIA index has a long history as a proxy for the overall U.S. economy.  

Several exchange traded funds (etfs) and index mutual funds are setup to make it easy to invest money into the pool of DJIA companies.  This is considered relatively low risk because of the decent diversification within the pool of 30 DJIA companies.

To learn more about investing check out the beginner's guide to stock investing.

(C) 2022-23 jspublishing.blogspot.com