March 07--In a sign of the times, Apple is about to take its place among the 30 bluest of the blue chip companies -- in other words, among the nation's premier companies considered "a must" when thinking about the fabric of the U.S. economy.
On March 19, the ubiquitous tech monster becomes a part of the Dow Jones industrial average, an index designed to reflect the giant companies that represent a cross section of the nation's economy. While Apple, the maker of iPhones and iPads, becomes a part of the index, AT is being kicked out in a move that shows how dramatically the economy is changing.
AT, which has transitioned from a company of phones hooked into walls to one of modern technologies such as wireless service, has been in the Dow for most of the past 100 years, an old-timer in the 119-year old index along with household names such as General Electric.
Apple, on the other hand, is known as being on the forefront of innovation.
Its smartphones and other mobile devices have changed the way people get information. They can do everything from find restaurants to watch movies while walking down the street. As customers have grown to expect information and entertainment at their fingertips, investors are now looking forward to Apple introducing its next mobile device, a watch. In the future, the company is expected to offer smart TVs and perhaps later, automobiles.
From an investors' standpoint, being in the Dow won't necessarily do anything to advance the stock price. Most institutions such as pension funds follow the Standard Poor's 500 Index with their investments, not the smaller 30-stock Dow Jones industrial average.
But it gives the company "a psychological boost," said Russ Koesterich, chief investment strategist of BlackRock. Placement in the Dow, the nation's oldest stock index, "confirms Apple is a premier firm in the U.S. and the world," said Koesterich. It joins companies ranging from Exxon Mobil and Caterpillar to McDonald's and Procter Gamble.
Most individuals with 401(k) plans or IRAs own some Apple stock even if they aren't aware of it. Since it is the most valuable company in the world, it makes up the largest portion of the Standard Poor's 500 index -- about 4 percent. Other mutual funds that invest in large U.S. company stocks typically copy the S 500 Index and usually hold Apple too.
Apple's market capitalization, or market value, is about $737 billion, far ahead of Google's $386 billion. Some analysts think Apple will become the world's first $1 trillion company. Friday, Apple stock climbed 0.15 percent to $126.60.
AT declined about 1.5 percent to $33.48 and has a market value of about $174 billion. But getting kicked out of the Dow shouldn't hurt the stock, said Josh Peters, a dividend-stock analyst for Morningstar.
"People might think that since it's not in the Dow anymore they should sell it," he said.
But AT being out of the index won't hurt business operations or it's ability to pay dividend. AT's dividend yield is about 5.5 percent compared with just 1.5 percent for Apple. But those who invest in Apple tend to do so more for future growth than the income it provides.
With the absence of AT, Verizon Communications will be the only telecommunications company in the Dow. The sector will make up about 2 percent of the index, with technology at about 19 percent, said Standard Poor's analyst Howard Silverblatt.
Visa has been the best performing Dow stock since the close of 2013, accounting for about 21 percent of the index gain, Silverblatt said.
A committee that oversees the composition of the Dow Jones industrial average makes changes from time to time to reflect the economy and the stature of companies.
Apple, for example, is considered by analysts to be the largest brand name in the U.S., and perhaps the world, and reflects the new digital economy.
"It continues to innovate and continues to replenish," Koesterich said.
"Apple has the world's most valuable technology platform and is best positioned to capture more users' time in areas such as health, cars and homes as these platforms expand into the Internet of Things era," said Morgan Stanley analyst Adam Parker in a report. "Despite broad investor concerns, we do not see Apple's large market cap as a valuation constraint."
gmarksjarvis@tribpub.com
