As the market had anticipated, the aerospace business of Honeywell International Inc. was spun off on June 29, serving as the direct catalyst for Alphabet (GOOG) to replace Verizon (VZ) in the Dow Jones Industrial Average. With Verizon removed, Nike (NKE) now stands as the lowest-priced component in the Dow, a status that could foreshadow trouble for its prospects within the index.
Nike currently faces a structural disadvantage under the Dow’s price-weighted mechanism, as its prolonged stock price slump renders its contribution to the index minimal. Although the company boasts a strong brand foundation and a consistent dividend payout history, its slow transformation progress and challenging external environment put its status as a Dow component at serious risk. Should it ultimately be replaced, Meta Platforms (META), with its industry representation and newly adopted dividend policy, would likely emerge as the strongest candidate. However, historical experience suggests that removal does not signify the end of investment value, and patient capital may still find opportunities amid the brand’s recovery.
In its announcement on June 23, S&P Dow Jones Indices explicitly cited Verizon’s low stock price as the reason for its removal, noting that the stock accounted for less than 0.5 percentage point of the index. The announcement emphasized: “The Dow Jones Industrial Average is a price-weighted index, so stocks that have been at low levels for an extended period have minimal impact on the index.”
Nike currently accounts for only 0.5% of the Dow’s weight as well. The stock is hovering near 12-year lows. Even when factoring in dividends, Nike has delivered a total shareholder return of just 39.6% during its tenure as a Dow component.
Nike remains a giant in the footwear and apparel industry and has paid and increased its dividend for 24 consecutive years, with its current 4% dividend yield ranking among the highest in the Dow. But even if the stock were to double, it would still be the lowest-priced stock in the index. Given that its transformation is far from complete, Nike’s removal from the Dow would come as no surprise.
It is worth noting that there are recent cases where removed Dow components later outperformed their replacements. Intel, since its removal in November 2024, has far outpaced Nvidia; Raytheon Technologies has similarly beaten Honeywell; and Exxon Mobil has even dominated Salesforce. Therefore, even if Nike were removed, patient investors who believe in its brand strength and transformation potential might still hold on to this high-dividend stock.
When replacing index components, S&P Dow Jones Indices tends to favor companies from the same industry or with overlapping businesses, though this is not an absolute rule—Salesforce’s replacement of Exxon Mobil being a case in point. Alphabet’s substitution for Verizon and Amazon’s replacement of Walgreens Boots Alliance, from an industry classification perspective, fall under adjustments in the communication and consumer discretionary sectors, respectively, even though both Alphabet and Amazon are themselves technology giants.
Given that Nvidia has already been selected for the Dow, it is unlikely that Broadcom or Micron Technology would replace Nike. Tesla has a chance to be chosen, but a potential merger with Space Exploration Technologies would complicate matters.
On balance, if Nike were to be removed, the most logical replacement would be Meta Platforms. The Dow already has ample representation in both consumer discretionary and consumer staples sectors, so rotating in a stock from a different sector makes sense. Meta overlaps with Alphabet in advertising, but it stands alone in the social media space and began paying dividends in 2024, with sustained increases likely to strengthen its blue-chip credentials.
