Business & Tech

GE is dropped from Dow Jones industrial average

The General Electric logo appeared above a trading post on the floor of the New York Stock Exchange in 2017.
Associated Press/File
The General Electric logo appeared above a trading post on the floor of the New York Stock Exchange in 2017.

General Electric Co. was booted out of the Dow Jones industrial average Tuesday, a symbolic indignity that reflects the decline of the Boston-based giant as it tries to remake itself in the Internet era.

The conglomerate was an original member of an exclusive corporate club when the Dow was started in 1896 — alongside the likes of Tennessee Coal & Iron and Distilling & Cattle Feeding — and is the only one of the original 12 to survive today as an independent company.

The move of GE, still one of the country’s largest publicly traded companies, from Connecticut to Boston in 2016 was greeted with much fanfare. But in 2017 GE earned the unwelcome moniker “the dog of the Dow” for being the worst-performing of the 30 Dow stocks. It is trading at around $13 a share today, less than half its price a year ago.


“That’s concerning when one of the world’s largest companies trades for less than a large pepperoni pizza,” said Mark Williams, a lecturer at Boston University’s Questrom School of Business.

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The S&P Dow Jones Indices said that GE would be replaced by Walgreens Boots Alliance Inc., arguing the pharmacy chain is more representative of the consumer and health care sectors and that its inclusion would make the index a better measure of the economy and overall stock market. The change will be effective as of June 26.

In years past, GE was ubiquitous, making the heavy machinery for an expanding global economy and supplying seemingly every other home in the country with refrigerators, air conditioners, and microwave ovens. Once a training ground for generations of corporate executives, GE is now the subject of its own radical transformation, a painful slimming down to just three main business lines: health care, aviation, and power.

Even the lighting business, which GE traces back to Thomas Edison, is about to be sold.

With all the turmoil, many analysts had expected GE to leave the Dow sooner or later.


“I’m kind of surprised it took this long,” said Nick Heymann, an analyst at William Blair & Co. who follows GE. “It’s obviously a historic kind of announcement, from the standpoint that GE was one of the original founding members. But in terms of [GE’s] predictive status as a component of the Dow, with regard to the US economy, it has declined or eroded steadily over the past decade.”

GE’s languishing stock price also played a role. Walgreens has a higher share price than GE and so will provide a more meaningful contribution to the price-weighted index.

“We are focused on executing against the plan we’ve laid out to improve GE’s performance,” the company said in a statement Tuesday evening. “Today’s announcement does nothing to change those commitments or our focus in creating a stronger, simpler GE.”

The Dow index itself has become a bit of a misnomer, as few of the other companies on it can be considered “industrial” anymore. Among the largest weighted stocks in the Dow are UnitedHealth, Goldman Sachs, Home Depot, and Apple.

GE was dropped from the Dow before but has been continuously included among the world’s most widely watchedbarometer of stocks since 1907.


Its pending departure comes amid a particularly tumultuous time for GE. Jeff Immelt exited as chief executive earlier than expected last summer, a move widely seen as a reaction to the increasing frustration among investors to the company’s sluggish growth and lackluster stock performance.

His successor, John Flannery, has been trying to reshape the company into a smaller, more profitable conglomerate — with plans underway to divest some $20 billion worth of business lines.

At the end of 2017, GE finished 18th on the Fortune 500, based on 2017 revenue of $122 billion, and currently it has a market capitalization of $112.5 billion, based on its closing stock price Tuesday of $12.95.

The company employs about 300,000 people worldwide, though that number will surely drop once Flannery’s various divestitures are complete. Only about 250 work in Boston now, but GE has begun work on a new headquarters complex in Fort Point.

GE’s 2016 move to Boston was considered a big win for Governor Charlie Baker and Mayor Martin J. Walsh following a spirited competition between several states for the headquarters. Immelt at the time said moving from the suburban enclave of Fairfield, Conn., to the heart of a major city was crucial to building a culture of innovation at the company, as he sought to make GE a software powerhouse.

To Williams, the BU lecturer, Immelt didn’t move quickly enough to transform the business.

“Being booted off the Dow says it all,” Williams said. “GE had the opportunity over the last decade to innovate and use its massive cash flow to buy future bright-light businesses and stay relevant. Instead, they sat on their laurels and let a storied franchise disintegrate.”

Heymann, the William Blair analyst, remains bullish on the stock. He said its future is much more dependent on whether Flannery can complete a turnaround, not on what index it is listed on.

“So few institutional investors base their decisions on who is in the Dow,” Heymann said. “It may have some impact on retail investors, but retail investors have largely decided to move on.”

Jon Chesto can be reached at Follow him on Twitter @jonchesto.