Citigroup stock: Being dropped by Dow index isn't the problem

— -- Q: Citigroupc was dropped from the Dow Jones industrial average June 8. Will this affect the stock price in the long run?

A: Although it only represents 30 stocks, the Dow Jones industrial average remains one of the most popular ways for investors to keep an eye on the U.S. stock market.

Over recent history, components of the Dow have remained fairly constant, compared with some other stock indexes. Still, there are changes from time to time, as you can see if you click on the links below.

Most recently, on June 8, two major changes were announced: Citigroup and General Motors gm were removed and Cisco Systemscsco and Travelerstrv were added.

On its surface, you might think having a stock like Citigroup removed from the Dow would be horrible news, because being a component of the Dow gives a stock some blue-chip stature.

But you don't want to worry too much about the effect of Citigroup's removal on the stock. Citigroup is still part of the Standard & Poor's 500 index. That's significant because there's more money directly invested in the companies in the S&P 500 than in the Dow 30.

Vanguard's top market index fund, for instance, owns the stocks in the S&P 500. Being removed from the S&P 500 would mean billions of dollars invested in the stock by index funds would come out. But that's not happening.

That said, stocks are dropped from the Dow for a reason.

The last stock to get kicked out of the Dow, American International Groupaig, has suffered greatly. Shares are down 70% from the time AIG's stock was removed on Sept. 22, 2008.

Many companies are dropped due to major industry shifts. For instance, Eastman Kodak shares ek are down quite a bit since they were removed from the Dow on April 8, 2004. The shares aren't down because Kodak is not in the Dow, but rather because Kodak's traditional film photography business was clobbered by digital photography.

Citigroup isn't facing technological obsolescence. The company is clearly having issues. But some analysts believe the stock has been so beaten up, there might be good value there. If you agree, find out how to evaluate bank stocks by reading more here.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns. Follow Matt on Twitter at: twitter.com/mattkrantz

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