How does a company get added to Dow?

Question: I’ve noticed that companies are added to and removed from the Dow Jones industrial average from time to time. Who decides this, and what are the criteria?

Answer: The Dow has been in existence since 1896, when Charles Dow published the average price of 12 stocks he personally selected that he thought painted a picture of how American industry was performing.

Since then, companies have come and gone. The number increased to the current 30 shortly before the Great Depression, and over time, weaker and failing companies have been removed and more important ones have taken their place. For example, Citigroup and General Motors were removed from the Dow in the wake of the financial crisis, replaced by Cisco Systems and Travelers. Companies can also be removed if they’re acquired or taken private, as well as for trouble within the business.

Currently, there is speculation General Electric could be removed from the Dow if it continues to struggle. Ironically, GE is the only one of the original components that remains in the index today.

Dow components are chosen by S&P Dow Jones Indices, and there are no specific rules for inclusion. Generally speaking, components should be large and respected companies. However, they aren’t the 30 largest companies in the market (a common misconception). So if GE is removed, there’s no way to accurately predict the replacement.