Amazon to Replace Walgreens in the Dow Jones Industrial Average
In a significant change, Amazon.com, the largest e-commerce company in the U.S., will replace Walgreens Boots Alliance in the prestigious Dow Jones Industrial Average. The announcement was made by S&P Dow Jones Indices, and the change will be effective from February 26.
The inclusion of Amazon in the Dow is noteworthy due to its dominant position in the market. Not only is Amazon a leader in e-commerce, but it is also a major player in cloud services, which are becoming increasingly crucial in the digital age. Amazon’s reach extends beyond the virtual realm as well, with operations in freight & logistics and ownership of the popular Whole Foods grocery chain.
Amazon’s impressive growth over the years has contributed to its success. Since its initial public offering in 1997 until December 2020, the company generated nearly $1.6 trillion in wealth for its shareholders. This puts Amazon among the best-performing stocks since 1990.
On the other hand, Walgreens Boots Alliance has faced challenges recently. The company made the difficult decision to cut its dividend in order to redirect cash into the business. Additionally, its share price has been on the decline, resulting in its weight in the Dow becoming negligible under the index’s price-weighted system. In stark contrast, Amazon’s inclusion will have a significant impact on the Dow, with its share price positioning its weight at approximately 17 out of 30, or roughly 2.8%.
It is important to note that Amazon’s inclusion in the Dow does not technically increase the index’s weighting in the Information Technology sector. This is because Amazon is classified under the consumer discretionary sector, replacing Walgreens, which is considered a consumer staples stock.
While the induction of Amazon into the Dow brings prestige, its impact on fund flows is expected to be minimal. The S&P 500 remains the more commonly used benchmark for U.S. stock performance. Nevertheless, the addition of Amazon to the Dow reflects the evolving nature of the U.S. economy and stock market, as the company continues to disrupt traditional industries and reshape the business landscape.
Analyst comment
Positive news. Amazon’s inclusion in the Dow Jones Industrial Average shows its dominant position in the market and its impressive growth. This will have a significant impact on the index, positioning Amazon as a major player. However, its impact on fund flows is expected to be minimal as the S&P 500 remains the primary benchmark for U.S. stock performance. Amazon’s addition reflects the evolving nature of the U.S. economy and stock market.
