Verizon's Days as Dow Jones Component May Be Over: 3 Potential Replacements

Verizon's days as a Dow Jones Industrial Average component may be numbered due to its low share price, declining value over the last decade, and lack of innovation. The committee responsible for making changes to the index prefers companies that will influence the Dow, add value, and represent important industries. Verizon's $43.55 share price doesn't exert much influence, and the company's 8% decline in value over the trailing decade makes it a less desirable candidate.

The Dow Jones Industrial Average (DJINDICES: ^DJI), one of Wall Street's most iconic benchmarks, has undergone numerous changes since its inception in 1896. Recently, the focus has shifted towards the potential removal of Verizon Communications (NYSE: VZ) from the index, given its low share price and underwhelming performance over the past decade. The committee responsible for managing the Dow Jones tends to favor companies that can influence the index, add value over time, and represent significant industries.

Verizon's current share price of $43.55 places it at the bottom of the Dow Jones' totem pole in terms of share price, contributing less than 268 out of the index's 44,829 points. This is a significant factor, as the Dow is a share price-weighted index, meaning higher share prices have more influence within the index. Additionally, Verizon's shares have declined by 8% over the trailing decade, further diminishing its appeal as a candidate for inclusion in the index.

The committee that manages the Dow Jones typically looks at three factors when considering changes to the index: share price, performance, and representation. While Verizon remains a significant provider of wireless services, broadband, and streaming content, its lack of innovation and declining share price make it a less desirable candidate. The committee prefers to include companies that can lift the index over time, and Verizon has not demonstrated this ability.

Three potential replacements for Verizon have been proposed. The first is Alphabet (NASDAQ: GOOGL), which has seen its share price drop to nearly $180 due to a 20-for-1 forward split. Alphabet would bring relevance from various industries into the Dow, including internet search, cloud infrastructure, and ride-sharing. Its strong performance, with Class A shares up 65% over the trailing-three-year period and 556% over the trailing decade, makes it a strong candidate.

The second candidate is Meta Platforms (NASDAQ: META), the company behind popular social media platforms. Meta's share price is currently around $719, but it has the potential to influence the Dow significantly if a stock split is implemented. Meta's strong performance and its role in the advertising industry make it a compelling option.

The third candidate is T-Mobile (NASDAQ: TMUS), which could replace Verizon as a telecom service representative in the index. T-Mobile's share price is $240.75, and its shares have climbed 76% over the last three years and 518% over the trailing decade. T-Mobile's growth, particularly in rural areas and small markets, makes it a strong contender.

In conclusion, Verizon's future in the Dow Jones Industrial Average is uncertain due to its low share price and declining performance. The committee is likely to consider companies like Alphabet, Meta Platforms, and T-Mobile as potential replacements. Investors should keep an eye on these developments, as changes to the Dow Jones can have significant implications for the broader market.

References:
[1] https://finance.yahoo.com/news/verizons-days-dow-jones-industrial-070600346.html