Dow Jones Industrial Average History: Why AAPL Just Became Worthy

In the 128-year Dow Jones Industrial Average history, components have changed only 53 times.

But today (Friday) the iconic index announced Apple Inc. (Nasdaq: AAPL) will replace AT&T Inc. (NYSE: T). The change becomes effective at market open Thursday, March 19.

"As the largest corporation in the world and a leader in technology, Apple is the clear choice for the Dow Jones Industrial Average, the most recognized stock market measure," S&P Dow Jones Indices' chairman of the Index Committee David M. Blitzer said today.

Here are the companies Apple joins in the Dow:

Dow Jones Industrial Average history

AAPL has long been considered for addition to the Dow.

It's the most valuable company in the world with a market cap of $732.5 billion. That and its trend-setting products and global brand recognition have made AAPL for years at least as worthy a Dow Jones member as any of the current tech companies in the index. In fact, one could argue Apple superseded all of them, particularly  Microsoft Corp. (Nasdaq: MSFT).

But there's a good reason why Apple is only just now making Dow Jones Industrial Average history...

Why Apple Will Finally Become Part of Dow Jones Industrial Average History

We wrote about the Silicon Valley giant's striking non-Dow status in May 2012 in "Why Apple Inc. Is Too Rich for the Dow Jones."

You see, there's one big reason the Dow's Index Committee could not include Apple: the AAPL share price.

AAPL would have been a massive percentage of the Dow because it's a price-weighted index.

"In a nutshell, the Dow Jones Industrial Average can't afford Apple stock," Money Morning Associate Editor David Zeiler, who once operated one of the top Apple blogs in the world, wrote in May 2012. "AAPL - now back over $550 and apparently headed to $600 and beyond - would overwhelm the index. Apple stock would account for about 25% of the Dow Jones, more than double the 11.5% of current leader International Business Machines Corp. (NYSE: IBM)."

At the time, if Apple were in the Dow 30, a move of just 5% in the Apple stock price would have pushed the Dow up - or down - about 200 points.

But two important factors have changed since May 2012 that render AAPL stock eligible for the Dow today ...

The first was AAPL's 7-to-1 stock split last June.

Apple Chief Executive Officer Tim Cook said on April 23, 2014 the reason for the split was to make AAPL stock appear "more affordable." Experienced investors know share price is irrelevant, but Cook recognized a lower price at least makes a stock appear more affordable.

While affordability was Cook's stated motive, Zeiler suggested another alternative - one that would eventually change Dow Jones Industrial Average history.

"A more likely reason for the dramatic split is that Cook wanted to get the price to where AAPL could reasonably be considered for inclusion in the Dow Jones Industrial Average," Zeiler wrote on June 2, 2014.

[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]

Indeed, Blitzer named Apple's 7-to-1 stock split as part of why Apple was chosen to replace AT&T later this month.

"Apple's split brought the stock price down closer to the median price in the DJIA," Blitzer said today.

The second important factor that made AAPL eligible for the Dow Jones now is actually another stock split.

Visa Inc. (NYSE: V) - which has been a Dow component since Sept. 20, 2013 - has scheduled a 4-to-1 stock split that will take effect the same day Apple enters the DJIA.

The Visa stock price will automatically reset lower after the split. That means Visa will have less of an impact on the Dow.

Additionally, it will reduce the weighting of the "information technology" sector in the index - which makes room for Apple.

Including Apple "will help to partially offset this reduction," Blitzer said. "In price weighted indices such as the Dow, a large change in price of a high-priced stock can have a material impact on sector representation in the index and this index change is designed to minimize that impact."

AT&T is getting axed because it has one of the lowest stock prices of all Dow 30 components.

Committee members also believe the index has too big a weighting in telecommunication stocks. Blitzer said Verizon Communications Inc. (NYSE: VZ) will continue to represent that sector in the index.

Be the Smartest Investor Wherever You Go: Apple is about to be added to the Dow - but how well do you know the rest of Dow Jones Industrial Average history? Become an expert on the Dow's real story here...