DJIA drops Kraft Foods for UnitedHealth Group

The Dow Jones Industrial Average (DJIA) will drop Kraft Foods Inc. (NASDAQ:KFT) as of Sept. 21—replacing it with UnitedHealth Group, Inc. (NYSE:UNH), it was announced Friday morning.  Kraft Foods Inc.’s decision to split into two public companies–a North American grocery business and an international snack company called Mondelēz International, Inc.–makes the company less representative of the US stock market, as far as the DJIA is concerned.

Kraft Foods Inc.’s sales of macaroni and cheese, shredded cheese, salad dressings and other familiar middle-American food items may yield better dividends than UnitedHealth Group’s insurance products, but the company’s global expansion doesn’t suit the Dow any longer.

Replacing Kraft Foods, Inc. with a health insurance company instead of a tech company like Google, Inc. (NASDAQ:GOOG) or Apple, Inc. (NASDAQ:AAPL) might seem like a strange move, but the high price of these tech stocks could distort the Dow Jones Average.  Besides, the Dow Jones Average is already home to Microsoft Corp. (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM) and Intel Corp. (NASDAQ:INTC).

The Dow Jones Industrial Average is weighted by stock prices, measuring 30 companies–the highest of which is International Business Machines Corp., better known as IBM.  IBM shares closed at $206.81 on Friday, compared with Apple Inc.’s price, which is closing in on $700 per share.

The Dow’s interest in UnitedHealth Group, Inc. comes at a time when Americans’ health care spending is inarguably on the rise.  And the company will compliment the presence of pharmaceutical companies Merck & Company, Inc. (NYSE:MRK) and Pfizer, Inc. (NYSE:PFE).

Kraft Foods’ shares closed down slightly, at $39.93 on Sept. 14, following the DJIA’s announcement.  UnitedHealth Group’s shares closed up .36 points, at $54.25.  The DJIA itself gained 53.51 points, closing at  13,593.37 on Friday.

Adjustments to the DJIA’s calculations will prevent the swap from affecting the level of the index.

Author:Mary Shell

Mary Shell is a freelance business journalist based in Brookyn. She contributes to The Local - Fort Greene and Clinton Hill. You can also follow her work on additionallypleasenote.tumblr.com.

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