The change is being performed to increase its weightage on Oil and Gas (Energy) along with Banking, and cut down a bit on the manufacturing and industrial parts. Hence, the change will see Altria and Honeywell being dropped out of the DJIA and Bank of America and Chevron replacing the two outgoing stocks.
The reasoning given behind this change is that this change will give more correlation with the S&P500 index, which will have a combined effect of 30% in the S&P500 index.
How were the stocks decided?
Altria is a Food and Tobacco major, and last year it had spun off a company called Kraft Food. In the coming next month, it will be spinning off Philip Morris International, making it a smaller company and completely different operations for foreign and domestic funds.
Honeywell will go away because it's the smallest in its category in terms of revenue and earnings. Bank of America is being added to counter the underweighting of financials.
Chevron, which was eliminated sometimes in 1999, is again entering the index to increase the index's weighting in oil.
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