GE booted from the Dow, to be replaced by Walgreens

  • Industrial giant General Electric is out of the Dow Jones industrial average and will be replaced by drugstore chain Walgreens Boots Alliance.
  • GE was one of the original components of the Dow Jones industrial average in 1896 and has been a continuous member of the blue-chip index since 1907 .

Industrial giant General Electric is out of the Dow Jones industrial average and will be replaced by drugstore chain Walgreens Boots Alliance.

GE was one of the original components of the blue-chip index in 1896. It has been a continuous member since 1907, or 111 years. In the past year, its stock has been battered as the company overhauls its business.

CEO John Flannery is in the midst of an extensive restructuring of the business that is likely to include the sale or spinoff of parts of the company's portfolios. But investors have feared the value of its business is declining.

"We are focused on executing against the plan we've laid out to improve GE's performance," the company said in a statement. "Today's announcement does nothing to change those commitments or our focus in creating a stronger, simpler GE."

David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said in a statement adding Walgreens to the Dow Jones industrial average will make the index "more representative of the consumer and health-care sectors of the U.S. economy."

"Today's change to the (Dow Jones industrial average) will make the index a better measure of the economy and the stock market," Blitzer said.

The change will occur prior to the open on Tuesday, June 26.

Walgreens' stock closed at $64 before on Tuesday, which would make it the six least impactful stock in the index. Shares of the drugstore chain have shed 19 percent over the last 12 months and 11 percent so far this year.

With the Walgreen's addition, consumer staples companies will make up about 7 percent of the index. Only energy, materials and telecom stocks are less represented in the Dow.

GE's stock has fallen more than 55 percent over the last 12 months, losing more than 25 percent this year alone. This move will put further pressure on GE shares as some index funds will no longer be required to own the stock.

GE was the lowest-priced stock and had the least impact in the index. Shares closed at $12.95 on Tuesday.

Still, GE's market capitalization is much larger than that of Walgreens: General Electric's is more than $110 billion, while the drug store chain's is about $64 billion.

Bob Nardelli, who served as president and CEO of GE Power Systems and as senior vice president of GE from 1995 to 2000, said it's "a sad day" for everyone who worked at GE for such a long time. However, it's not necessarily a surprise.

"Let's face it, it was weighting the Dow down. And when people use that as a barometer for investment, I'm not surprised that they decided to transition GE out," Nardelli told CNBC's "Fast Money."

GE cut its weighty dividend in half in November, to 12 cents per share from 24 cents per share. Some investors and analysts fear Flannery's turnaround plan of the embattled conglomerate will have to include another cut to the dividend.

Investors breathed a sigh of relief when the board of directors issued the dividend for the current quarter earlier this month.

Two ongoing federal investigations are also hanging over the company. The Securities and Exchange Commission is probing GE's accounting practices and the Justice Department is investigating GE's connection with subprime mortgages.

—CNBC's Michael Sheetz and CNBC's Robert Hum contributed to this report

Correction: An earlier version misstated the number of components when the Dow Jones industrial average index was started in 1896. It was 12. The story was also updated to clarify that GE has been a continuous member of the Dow since 1907.