How does the Dow Jones Industrial Average (DJIA) divisor change to account for dividends?

Question

The DJIA is a price-weighted index tracking of 30 companies chosen by the Dow Jones Company. It takes the current share price of these 30 stocks and divides by a specific number called the divisor. The index is not affected by price changes caused by stock splits and dividend payments, which is due to the divisor being changed in response to stock splits and dividend payments.

How does the divisor change for a dividend payment? Is there a specific equation to take into account the amount of dividend sent out? I have only seen information on how the divisor changes for stock splits.

Answer 1

The methodology for divisor changes is based on splits and composition changes. Dividends are ignored by the index.

Side note - this is why, in my opinion, that any discussion of the Dow's change over a long term becomes meaningless. Ignoring even a 2% per year dividend has a significant impact over many decades.

The divisor can be found at http://wsj.com/mdc/public/page/2_3022-djiahourly.html

Answer 2

Scrip dividends are similar to stock splits. With a stock split, 100 shares can turn into 200 shares; with scrip dividends they might turn into 105 shares.