By Richard Bloch
Most people know that the Dow Jones Industrial Average has its quirks – given that it’s weighted by price, not market capitalization. That means, of course, that its performance largely depends on the higher priced stocks in the average.
I noticed that IBM (NYSE:IBM) closed over $160 on January 25. That’s the highest priced stock in the average, thus it now accounts for more than 10% of the Dow’s performance.
Here’s a look at some of these Dow components based on the January 25 close:
So here are some interesting Dow facts:
- If all the stocks in the average were to trade at their 52-week highs, the DJIA would reach about 12,500.
- If all the stocks in the average were to trade at their 52-week lows, the DJIA would fall to about 9,032.
- In terms of dividends, if you owned 1 share of each stock in the average, you’d collect about $38 per year in dividends for a yield of about 2.4%.
- Assuming those dividend amounts don’t change, if the yield rose to 3%, the DJIA would be trading around 9,590.
- If that yield were to fall to 2% (once again, assuming dividend amounts don’t change), the DJIA would be trading above 14,000.
So far the DJIA is up 3.45% for the year, compared to a 2.66% rise in the S&P 500 index, and it’s those high-priced stocks like IBM (up about 10% on the year) that are largely responsible.