The Dow Jones Industrial Average is about to become a lot more Apple friendly.
Starting March 19, Apple will replace AT&T in the Dow Jones Industrial Average, an index that tracks 30 US blue-chip companies and is a leading bellwether of the nation's economic performance.
The selection of Apple for the vaunted stock market measure came easily, according to the S&P Dow Jones Indices, which manages the index.
"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," David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a statement Friday.
Its DJIA membership means Apple lands even more investors than it already has because many portfolio funds automatically invest in those 30 companies. But the Dow represents just another feather in Apple's cap. Over the last several years, the Cupertino, Calif.-based tech giant has generated billions of dollars in profit selling iPhones, iPads, Macs, iPods and other products. Apple is now the world's most valuable company, with a market capitalization of $740.4 billon. Exxon, the second-most valuable company by market cap, is about $360 billion.
, ended December 27, was its best ever, as the company recorded $74.6 billion in revenue and a profit of $18 billion. It was, in fact, the for any publicly traded company. Its success was fueled by the company's wildly popular iPhone line, which tallied 74.5 million unit sales during the period, thanks in large part to the popularity of Apple's latest handsets, the iPhone 6 and iPhone 6 Plus.
The DJIA was unveiled in 1896 by Charles H. Dow, and has since become the go-to metric for Wall Street's performance. The S&P carefully selects each company to reflect the overall health of the entire stock market. About two-thirds of those companies provide industrial and consumer goods and services, but it also includes credit card companies American Express and Visa, conglomerate General Electric, mega-retailer Walmart as well as technology behemoths Cisco Systems, Microsoft, IBM and Intel.
While the S&P said that it picked Apple because of its leadership position in the technology industry, there is, understandably, a financial rationale for the move. Apple's 7:1 stock split last June gave existing investors more shares and reduced, from $645 a share, making the stock more affordable for new investors. It also made Apple's share prices comparable to the rest of the DJIA. That's important because extremely high stock prices tend to distort the index, while very low stock prices have little impact.
"Apple's split brought the stock price down closer to the median price in the DJIA," Blitzer said.
The S&P removed AT&T from the Dow because the index was "overweighted" in telecommunications, Blitzer said, adding that AT&T and Verizon are similar. AT&T has an overall stock value of $173.9 billion compared with Verizon's $197.9 billion market cap, and is currently trading around $33.50 a share, among the lowest prices on the Dow.
Apple shares rose about 1 percent to about $127.50 in early trading Friday. AT&T's shares fell about 1.5 percent. Apple will host a media event on Monday, where it is expected to give more details about its smartwatch and new Macs.
AT&T declined to comment on its expulsion from the DJIA. Apple did not immediately respond to a request for comment.