What Happens to Stocks After They Leave the Dow?
Shares of Kraft Foods (NASDAQ: KFT) fell about half a percent on heavy volume Friday on news that the largest U.S. food company will be booted from the Dow Jones Industrial Average. Illinois-based Kraft, which earlier this year left the New York Stock Exchange for the Nasdaq, will be replaced by UnitedHealth (NYSE: UNH).
UnitedHealth's presence marks the addition of the first health insurance provider to the 30-stock index. For Kraft, its days in the Dow were short. The stock was added to the blue-chip index in September 2008 to replace American International Group (NYSE: AIG) at the height of the financial crisis.
The change takes effect on September 24. How Kraft trades in its post-Dow days remains to be seen. A look at some other former Dow members might provide clues. Stocks such as AIG, Citigroup (NYSE: C) and General Motors (NYSE: GM) were excluded from this list due to the macro circumstances that prompted those departures.
Altria (NYSE: MO) What is interesting is that Kraft is a spin-off of the old Philip Morris, meaning the Dow has now severed all ties to the company. The end of the relationship began on February 19, 2008 when the index started trading without Altria. No Dow, no problem for Altria. The shares were trading around $23 when the stock left the index and will close just under $33 today. Altria has also raised its dividend six times since leaving the Dow.
Eastman Kodak (OTCBB: EKDKQ) For as good of a post-Dow story as Altria is, Eastman Kodak is bad. Really bad. It is rarely a good thing when a company goes from having NYSE or NASDAQ before its ticker to having OTCBB. It is even worse when there is a "Q" at the end because that means the company is bankrupt. A shift in the global technological landscape, not the Dow departure, is what hurt Kodak. The company left the Dow in 2004. Over the past five years, the shares have lost nearly all of their value.
International Paper (NYSE: IP) International Paper left the Dow on the same day Kodak did. Fortunately for the Tennessee-based paper and packaging firm, its post-Dow experience has been vastly superior to Kodak's. Shares of International Paper still trade well below their April 2004 levels, but the stock has jumped 18.4 percent this year and yields three percent.
Honeywell International (NYSE: HON) The industrial conglomerate left the Dow on the same day as Altria. Today, Honeywell trades above where it did when it left the Dow, though not by much. In fairness, the stock was savagely beaten during the financial crisis, falling from around $56 on the day it left the Dow to the $25 area in November 2008. Honeywell's post-Dow dividend experience has included three increases. Unlike rival General Electric (NYSE: GE), still a Dow member, Honeywell did not cut its dividend during the financial crisis.
Chevron (NYSE: CVX) The second-largest U.S. oil company is an interesting Dow case because it left the index only to be added back. Chevron was bounced in November 1999, but came back in February 2008 with Bank of America (NYSE: BAC) to replace Altria and Honeywell.
During the time Chevron was away from the Dow, the stock nearly doubled. Since returning, the stock is up "just" 38 percent.
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