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How Now Brown Dow

Written By Luke Burgess

Posted February 11, 2008



The Dow Jones industrial average is replacing Honeywell (NYSE: HON) and Altria (NYSE: MO) with Bank of America (NYSE: BAC) and Chevron (NYSE: CVX). The changes are intended to help better reflect the economy and stock market with industries that have the greatest influence, Dow Jones & Co. said. 

The catalyst for dropping Altria is the planned spin-off of Philip Morris International Inc. Last year, Altria spun off Kraft Foods (NYSE: KFT) and next month’s spin off of Philip Morris will leave the company as a purely domestic tobacco firm.

Honeywell is being deleted because it is the smallest of the industrials in terms of revenue and earnings, Dow Jones said in a press release. The news comes despite the manufacturing company yielding the largest return to investors on the Dow last year.

Chevron has been in the index twice before, once as Standard Oil Co. of California from 1924 to 1925, and then again from 1930 until 1999. The second-largest US oil company recently reported a 29% rise in quarterly profits on the surging price of oil. Chevron will join the first-largest US oil company Exxon Mobil (NYSE: XOM) on the Dow.

Last month, Bank of America agreed to a tentative deal to purchase the nation’s top mortgage lender Countrywide Financial (NYSE: CFC) for $4.1 billion. The companies expect to finalize the deal in the second half of 2008. The addition and subsequent purchase of Countrywide will help better reflect the financial industry in the Dow average.

These changes, which will take place on Feb. 19th, are the first in the 111-year-old stock index in nearly four years. In April 2004, the index replaced International Paper (NYSE: IP), AT&T (NYSE: T), and Eastman Kodak (NYSE: EK) with Pfizer (NYSE: PFE), Verizon (NYSE: VZ), and American International Group (NYSE: AIG). AT&T is now back in the Dow because SBC Communications bought Ma Bell and kept the AT&T corporate name for the combined company.

– luke