I Correctly Predicted Alphabet Would Join the Dow Jones Industrial Average in June. Here's What the Index Shake-Up Means for Investors.

Honeywell International (HON +2.27%) is spinning off Honeywell Aerospace on June 29 as the final phase of breaking up its conglomerate structure to accelerate growth. In May, I predicted that Honeywell's spin-off would trigger a shake-up of the Dow Jones Industrial Average (^DJI +0.35%) that would open the perfect window for Alphabet (GOOG 0.30%) (GOOGL 0.33%) to join the index.

The prediction came true on June 23, when S&P Dow Jones Indices announced that while the streamlined Honeywell Technologies would remain in the Dow, Alphabet would replace Verizon Communications (VZ 2.25%) before the start of trading on June 29.

Here's what the news means for the Dow and for Alphabet investors.

Alphabet has been knocking on the Dow's door for years

The Dow turned 130 years old earlier this year. Throughout its history, the index has been weighted by price, meaning the cost of a single share of a company's stock. This is in contrast with the Nasdaq Composite (^IXIC 0.43%) and the S&P 500 (^GSPC 0.10%), which are weighted by a company's market cap.

There are plenty of S&P 500 companies that have been terrible investments for years, or even decades, that have remained in the index simply because they have stayed above the index's market-cap threshold. But the Dow, with just 30 components roughly representing stock market leadership, is much more selective. And if a former industry leader underperforms for too long, it stands a good chance of getting booted from the index.

This is exactly what happened to Verizon. To quote the June 23 press release by S&P Dow Jones indexes: "Verizon represents only one-half of one percentage point of the DJIA due to its lower share price. The Dow Jones Industrial Average is a price weighted index, and thus persistently lower-priced stocks have an immaterial impact on the index." In sum, Verizon had become so small -- its stock was trading around $45 as of June 24 -- that moves in its stock price had a negligible impact on the Dow, which isn't the index's purpose.

Alphabet used to have the opposite problem -- as of July 2022, its share price had soared over $2,200. But a 20-for-1 stock split that summer set the stage for the company to become a top prospect in the Dow pipeline. Alphabet is up big since its split, but it is still within the bounds of an acceptable addition. At the time of this writing, Alphabet's share price of $346.13 would make it the Dow's sixth-largest component, just behind Amgen and ahead of American Express, with a 4.1% weighting in the index.

Alphabet checks all the boxes for a stock to buy now

Although Alphabet is a tech-focused company, it is technically in the communications sector, which is why replacing fellow communications stock Verizon made perfect sense. However, the Dow has become significantly more tech-focused in recent years. Microsoft, Apple, International Business Machines, Nvidia, Salesforce, and Cisco Systems account for 15.3% of the Dow. Throw in Amazon (consumer discretionary sector) and Alphabet (assuming a 4.1% weighing), and that's 22.2% of the Dow.

Alphabet was long overdue for inclusion in the Dow. It is the third-most-valuable company in the world, behind Nvidia and Apple. It dominates internet services with Google Search. YouTube alone generated $9.9 billion in revenue in Alphabet's first quarter of 2026. For context, Netflix did $12.3 billion -- meaning YouTube could surpass Netflix in revenue in the coming years.

Google Cloud is the third-largest global cloud infrastructure provider, behind Amazon Web Services and Microsoft Azure. But Alphabet also has a leading large language model with Gemini. And Alphabet is ahead of Amazon and Microsoft in artificial intelligence chip production, rolling out its eight-generation Tensor Processing Unit chips (one for AI training and one for AI inference) earlier this year. Alphabet also owns Android, makes the Google Pixel and other devices, is a leader in quantum computing, and is involved in self-driving cars through Waymo.

In sum, Alphabet has a unique balance of diversification and high-margin growth, an exceptionally rare combination for a company of its size. Alphabet implemented its first-ever dividend in 2024. Every Dow stock except for Amazon and Boeing pays dividends. And to top it all off, Alphabet trades at 24.3 times earnings estimates for the next 12 months, which is a reasonable premium to the S&P 500's 20.8 forward price-to-earnings ratio considering Alphabet is a much higher-quality company than the typical S&P 500 component.