IB Net Payout Yields Model

Cisco and Travelers Added to the DOW

Not much of a surprise to see GM removed from the Dow Industrial average today with their BK filing, but I was surprised to see Citigroup (CIT) removed and replaced with Travelers (TRV). Both were long overdue, but the additions could be debated for a long time and highlights the weaknesses in owning indexes. In both cases, Dow Jones editors waited until the stock being removed had cratered and replaced them with stocks that help up relatively well in this economy. Definitely selling low and buying high. Also, they tend to lack the future growth prospects that one would want.

Zacks has a good article about the better options for the index. Both Google (GOOG) and Monsanto (MON) would provide better growth over the next 10-20 years. We've been a big investor in Baidu (BIDU) instead of GOOG as it has the lions share of the China search market. Still both options are probably better for investors and give the index a better fill for the future economy instead of being so focused on the best stocks of the last decade.

  • CSCO has long been considered to be prime candidate for the Dow. Given its size and influence, it's difficult to argue against adding the telecom equipment company. However, the average already has Hewlett-Packard , International Business Machines and Intel -- 3 bellwethers of the tech sector.
  • Therefore, I think a better choice would have been Google . Adding GOOG would have given the Dow exposure to the ever-growing ecommerce sector AND the wireless communications sector. Phones using Google's Android operating system are slated to appear at multiple carriers this fall.

  • Travelers was clearly picked to give the average another financial company. The Dow editors continue to like Citigroup and almost appear to be keeping a spot for it.
  • Rather than staying focused on the financial sector, however, the editors should have gone with Monsanto . Though agriculture accounts for a smaller portion of the U.S. economy than it did in the past, food consumption is only going to rise in the future. Furthermore, the ongoing focus on biofuels means long-term demand for companies like MON.


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