Dow Jones Industrial Average Composition

The Dow Jones Industrial Average (DJIA) tracks 30 selected American blue-chip companies representing the U.S. economy’s core.

Founded in 1896, this index predates many established corporations, including General Electric, whose share price of General Electric significantly influenced the index until its 2018 removal.

Unlike the S&P 500, the Dow provides a focused lens for tracking major market movements. Its price-weighted methodology — where higher-priced stocks exert greater influence regardless of company size — differs fundamentally from market capitalization weighting used by most indices.

History and Evolution of the Dow Jones Industrial Average

The DJIA began as an average of 12 industrial stocks calculated by Charles Dow and Edward Jones. These original components represented manufacturing enterprises like American Cotton Oil, reflecting America’s industrial economy in the late 19th century.

The index expanded to its current 30-component structure in 1928, though none of the original constituents remain today.

Key historical developments include:

• 1896: Launch with 12 manufacturing companies.

• 1928: Expansion to 30 components (current size).

• 1999: First technology company added (Microsoft).

• 2018: General Electric removed after 110 years.

• 2020: Salesforce, Amgen, and Honeywell replace ExxonMobil, Pfizer, and Raytheon.

This evolution mirrors America’s economic transformation from manufacturing to services, technology, healthcare, and finance. Each modification recalibrates the index to maintain relevance as economic power shifts between industries.

How the Dow Jones Works: Price-Weighted Methodology

The DJIA employs a price-weighted calculation where each company’s influence depends strictly on its share price rather than its market capitalization or economic significance.

This means a $500 stock impacts the index five times more than a $100 stock, regardless of which company might be larger.

The index value is calculated by summing the share prices of all 30 components and dividing by the Dow Divisor (approximately 0.1517).

This methodology creates unique situations in today’s market. Goldman Sachs, with its share price around $585, exerts substantially more influence than Apple trading at $224, despite Apple’s market capitalization being several times larger.

Similarly, UnitedHealth Group with shares around $514 impacts the index more than Microsoft or Amazon, regardless of their greater economic footprint.

Price-weighting leads to several important consequences:

• Companies can reduce their influence through stock splits.

• Firms avoiding splits gain disproportionate weight over time.

• Acquisitions or mergers that raise share prices increase index impact.

• Lower-priced components become nearly irrelevant to daily movements.

• Stock-specific news affecting high-priced shares can dominate index performance.

Daily DJIA movements become heavily skewed toward the highest-priced constituents, with the top five price-weighted companies often determining the index direction despite representing only 17% of the component count.

The Dow Divisor Explained

The Dow Divisor functions as the mathematical adjustment tool maintaining the index’s historical continuity. Originally set at 1.0, it has decreased to approximately 0.1517 today.

The divisor adjusts whenever component companies undergo events that would otherwise artificially impact the index value, including stock splits, spinoffs, special dividends, and component substitutions.

The adjustment process follows a simple principle: the index value before and after any corporate action must remain identical.

When a $100 stock splits 2-for-1, dropping to $50, the divisor decreases proportionally to prevent artificial index deflation. This mechanism ensures accurate historical comparisons despite numerous corporate actions.

The continuously declining divisor means each dollar change in a component stock produces a greater numerical effect today.

With the current divisor at 0.1517, a $1 change moves the index by approximately 6.6 points, explaining why point movements in today’s Dow appear more dramatic than historical changes.

Current DJIA Components and Sectoral Breakdown

Today’s DJIA spans major economic sectors, with technology, financials, and healthcare representing over half the index.

The composition includes tech giants (Microsoft, Apple), financial institutions (Goldman Sachs, JPMorgan), healthcare leaders (UnitedHealth, Johnson & Johnson), industrial companies (Caterpillar, Boeing), and consumer brands (Coca-Cola, McDonald’s).

The current sectoral weightings reveal America’s economic transformation:

1. Technology: ~21% (MSFT, AAPL, IBM, CSCO, CRM, NVDA).

2. Financials: ~16% (GS, AXP, JPM, TRV, V).

3. Healthcare: ~15.5% (UNH, JNJ, AMGN, MRK).

4. Industrials: ~14.7% (BA, CAT, HON, MMM).

The remaining 33% comprises consumer discretionary, consumer staples, energy, and materials companies. This distribution provides exposure to major economic segments through a single index.

The price-weighted structure creates a hierarchy where high-priced stocks dominate. Goldman Sachs holds the greatest weight at approximately 8.4% with its share price near $585, followed by UnitedHealth Group at 7.5% ($514) and Microsoft at 5.7% ($395).

Meanwhile, lower-priced stocks like Verizon, Cisco, and Nike each contribute less than 1% despite their substantial market capitalizations.

Selection Criteria and Index Management

The S&P Dow Jones Indices committee manages DJIA composition without publishing specific numerical thresholds. Their selections typically favour companies with:

• Market capitalizations exceeding $30 billion.

• Consistent profitability histories.

• Substantial U.S. operations.

• Industry leadership positions.

• Strong brand recognition.

• Future growth potential.

The committee evaluates candidates when existing components undergo changes that reduce their representational value.

They consider both quantitative factors like revenue growth and qualitative elements such as innovation capacity, often selecting companies for perceived future importance to the American economy.

This forward-looking approach explains choices like Salesforce replacing ExxonMobil in 2020, signalling cloud computing’s ascendance over traditional energy.

Unlike rules-based indices with scheduled reconstitutions, DJIA changes occur irregularly based on committee decisions, prioritising relevance over rigid criteria.

This flexibility allows adaptation to evolving economic conditions, though critics note it introduces subjectivity into the selection process.

Investment Products Tracking the Dow Jones

Investors seeking DJIA exposure typically use the SPDR Dow Jones Industrial Average ETF (DIA), commonly called “Diamonds,” which directly tracks the index with over $30 billion in assets.

Other options include leveraged products, inverse funds, futures contracts, and options on the DIA ETF. These vehicles accommodate different investment strategies and risk tolerances.

Limitations of the DJIA as a Market Measure

Despite its prominence, the DJIA faces criticism for its price-weighted methodology, which many consider outdated.

This approach creates situations where influence depends entirely on share price rather than economic significance. Additionally, with just 30 components, the Dow cannot capture the full breadth of the U.S. economy.

The committee-based selection process introduces subjectivity compared to rules-based indices, while the price-only calculation ignores dividend returns, understating long-term performance.

Nevertheless, the index’s historical continuity and focused composition ensure its continued relevance as a widely recognised market indicator, even as investment professionals typically reference the S&P 500 for benchmarking purposes.

The Dow Jones Industrial Average’s composition continues evolving, reflecting America’s economic transformation while maintaining its position as financial markets’ most recognizable barometer despite methodological limitations.