What Is the Dow Divisor?

The Dow divisor is a numerical value used to calculate the level of the Dow Jones Industrial Average (DJIA). The DJIA is calculated by adding up all the stock prices of its 30 components and dividing the sum by the divisor; however, the divisor is continuously adjusted for corporate actions, such as special dividends and stock splits.

澳洲幸运5开奖号码历史查询:Index divisors are commonly used in the case of a 澳洲幸运5开奖号码历史查询:price-weighted stock market index, such as the DJIA, to generate a more manageable index value.

How the Dow Divisor Works

The Dow divisor is used to maintain the historical continuity of the DJIA index since there have been numerous stock splits, spinoffs, and changes among the Dow constituents since the index was first introduced in 1896.

The Dow divisor maintains continuity by factoring in the many changes that take place within the market, such as stock splits and changes to—or payments of—special dividends.

The Dow divisor is adjusted to ensure that such events do not, in and of themselves, alter the true numerical value of the DJIA. Because of major changes that have taken place within the market, the value of the Dow divisor has changed significantly over the years. For example, it was at 16.67 back in 1928 and as low as 0.147 as of September 2019.

As of November 2024, the divisor for the DJIA is 0.16268413125742, but each Dow Jones index has its own divisor, such as the Dow Jones 20 Transport and Dow Jones 15 Utilities.

The Dow is named after 澳洲幸运5开奖号码历史查询:Charles Dow, a founding editor of The Wall Street Journal, who, in 1896, partnered with statistician Edward Jones to form the first version of the DJIA. Since this time, The Wall Street Journal has been tasked with ensuring that the Dow divisor is adjusted properly to maintain the DJIA’s historical accuracy.

Special Considerations 

Events such as stock splits or changes in the list of the companies composing the index can often alter the sum of the component prices. In these cases, and in order to avoid discontinuity in the index, the Dow divisor is updated so that the quotations right before and after the event coincide.

Most corporate actions, such as stock splits and spinoffs, have served to push the value of the Dow divisor lower. At first, the Dow divisor was composed of the original number of DJIA companies, which mad💞e the DJIA a simple arithmetic average; however, as certain events have taken place to alter the overall value of the market, the Dow divisor has been manually altered in order to ensure that the DJIA is accurately value🐽d.

The divisor fell below 1.0 in 1986 for the first time. The present divisor, after many adjustments, is less than one, which means the index is larger than the sum of the prices of the components. The fact that the divisor is now well below one means that the divisor now functions as a multiplier, rather than a divisor.

Example of the Dow Divisor

Let’s say you sum up the prices of the 30 constituents of the DJIA and arrive at 5,498.07. Assume that the Dow divisor is set at ℱ0.16268413125742: using this divisor, every $1 change in price in a particular stock within the average equates to a 6.14 (or 1 ÷ 0.16268413125742) point movement.

Dividing the price total of 5,498.07 by the Dow divis♋or of 0.16268413125742 would provide a level of 33,795.98 for the index. Note to divide the price total by the divisor and not the number 30, which is the number of names in the index.

The Bottom Line

The Dow divisor is an important component iꦗn determining the value of the Dow Jones Industrial Average (DJIA) Index. Because the value of the DJIA takes into consideration the stock prices of the companies in the index, adjusting the divisor to account for stock splits, special dividend payments, mergers, and acquisitions over time is necessary to reflect a correct value of the DJIA.

Correction—Nov. 30, 2024: This story has been updated to correct that the DJIA divisor is continuously adjusted for corporate actions, such as special dividends and stock splits.