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Saturday, May 30, 2009

Saturday Speculation: New Dow Component. A Hint or an Error?

Today I was looking through some fact sheets on the Dow website and I believe either an error has been made or Dow Jones accidentally leaked the next Dow component.

To begin we'll define the Dow Jones Industrial Average or Dow 30, as stated on their website: "To represent large and well-known U.S. companies. Covers all industries with the exception of Transportation and Utilities.”

Now to analyze both the Dow 10 (published March 31, 2009) and Dow 5 (published April 30, 2009).

Dow 10 as stated on their website: "To represent the 10 stocks in the Dow Jones Industrial Average with the highest dividend yield."

Dow 5 as stated on their website: "The Dow 5 measures the five lowest-priced stocks in The Dow 10, which represents the 10 stocks in the Dow Jones Industrial Average with the highest dividend yield."

If the Dow 5 is selected companies from the Dow 10, and the Dow 10 are the select companies from the Dow Jones Industrial Average (see first image below of all 30 Dow components and close price as of May 29, 2009. Taken from CNN Money), something isn't quite right here on the Dow 5 fact sheet, Burlington Northern (BNI) is listed as the second of the 5 components (see second picture below. Taken from Dow Jones fact sheet). (click images to enlarge).





Now with the bankruptcy of General Motors GM) likely to come Monday, the Dow will need to reshuffle the index. Could this be a mistake which is leaking the next Dow component, or just an error which means nothing?
If anyone can explain this, then please do, perhaps I am missing something. I understand that Burlington Northern is part of the Dow Jones Transportation index, but not the DJIA.
In conclusion, I assume it would be good news for BNI if they were added to the DJIA (good news for any company added to the DJIA for that matter), as recently posted in an article that measures the performance over 3 and 6 months of newly added components to the Dow.


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