Since the inception of the Dow Jones Industrial Average (DJIA) in 1896, it has historically been a go-to measure of overall U.S. stock market performance.
The DJIA is a price-weighted index, unlike other major equity indices, which are market-cap weighted. In recent years, the DJIA has drawn criticism due to its calculation methodology and has been viewed by some as secondary to the S&P 500. A shake-up in the constituents of the index following a four-for-one stock split by Apple may likely recalibrate the index to be more reflective of the U.S. stock market and economy.
At its beginning in 1896, the DJIA consisted of 12 staple U.S. industrial companies including American Cotton Oil Company (now Unilever), Chicago Gas Company (now People’s Gas) and General Electric. As companies in the U.S. have evolved, changes have been made periodically to the constituents of the index to maintain its original purpose of being a go-to measure of overall U.S. stock market performance.
Today, the DJIA is made up of 30 large-cap companies on U.S. stock exchanges from various industries including information technology, healthcare, industrials, consumer staples, etc.
Based on the observed values of major U.S. indices such as the S&P 500, Nasdaq Composite and DJIA, the U.S. stock market appears to have all but recovered since its low point in late March 2020. However, some questions have surfaced.
What has been the breadth of the stock market recovery? What impact did COVID-19 and the economic downturn have on companies’ revenues, profit margins, earnings and dividends?
Duff & Phelps analyzed each of the 30 companies currently in the DJIA to answer these questions. The stock market did have a V-shaped recovery based on the major stock market indices, but digging deeper, the story is different for each company. Revenue and profit margins deteriorated quickly in the second quarter of 2020 for most companies, but there were some bright spots. In addition, most of the companies in the DJIA didn’t reduce or eliminate dividends to their shareholders during this economic crisis. In fact, many increased them.
Key findings include:
- The DJIA dropped 37.1% from its peak at 29,551, on February 12, 2020, to 18,592 on March 23, 2020.
- Since its low point on March 23, 2020, the DJIA has increased 50.2% to 27,930 on August 21, 2020, just 2.1% below the index’s value at the start of the year.
- The DJIA gained 17.8% in Q2 2020, its best quarter since 1987.
- Apple, Microsoft and Home Depot have mitigated the negative stock price performance of the majority of the constituents in the index.
- Q2 2020 revenue for Energy and Industrial companies were down on average 54.2% and 22.3%, respectively, compared to Q2 2019, but IT was up on average 1.9%.
- Ten of the 30 (33%) DJIA companies increased EBITDA margins in Q2 2020 compared to Q2 2019.
- Fourteen of the 251 (56%) DJIA companies experienced an increase in leverage multiples (Debt/LTM EBITDA) in Q2 2020 compared to Q2 2019.
- Eighty percent of the DJIA constituents increased dividends per share in Q2 2020 compared to Q2 2019.
1.Excludes 4 companies in the Financials industry sector and 1 company (Boeing) with negative LTM EBITDA
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