Sunday, June 15, 2008

Stocks At Risk Of Removal In S&P 500 Index/Dividend Aristocrats Index

One criteria Standard & Poor's uses in considering a stock for inclusion in the Dividend Aristocrats Index is the stock must be a member of the S&P 500 Index. Recent stocks removed from the S&P 500 Index have been stocks with a market capitalization below $5 billion dollars.

Two recent changes to the S&P 500 Index involve the removal of Brunswick (BC) and OfficeMax (OMX). These two companies are being replaced by Cabot Oil & Gas (COG) and Massey Energy (MEE) at the close of trading on June 20, 2008.

(click on table for larger image)

Cabot Oil & Gas and Massey Energy added to S&P 500 Index June 20, 2008Source: Standard & Poor's (pdf)

Existing stocks in the S&P 500 Index that have a market cap below $5 billion are detailed in the below table. Stocks highlighted in red are current dividend aristocrats. The two stocks that are in bold are upcoming removals. It should be noted that changes to the Aristocrats Index do not occur until December of each year.

The S&P Midcap 400 Index contains several stocks with market capitalizations far above $5 billion:
  • Peabody Energy (BTU) with a market cap of $21.1billon
  • Precision Castparts (PCP) with a market cap of $14.4 billion
  • Cognizant Technology Solutions (CTSH) with a market cap of $10.3 billion


Anonymous said...

Do you really think that LEG will be removed from the S&P 500 when that removal will mean removal of an an Aristocrat with a 37 year history of dividend increases at a +14% growth rate? If you look at LEG's price history - ,it appears that it's barely been over $30. At 166.3 mil shares outstanding, that's a max market cap of $4.9899 Bil.

If you look at page 6 of the S&P U.S. INDICES INDEX METHODOLOGY (, it's clear that the selection committee has discretion: "Standard & Poor’s believes turnover in index membership should be avoided when possible. At times a company may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to an index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to that index will not be deleted unless ongoing conditions warrant an index change. When a company is removed from an index, Standard & Poor’s will explain the basis for the removal."

I would be very surprised if LEG is deleted from the S&P 500

David Templeton, CFA said...

I do not intend the list to represent stocks that will be eliminated. I only provide the list so investors are aware of the stocks that are at the low end of the market capitalization ranking. I would say though, that LEG's mrket cap puts it in the midcap range.