Electric automaker Tesla Inc (NASDAQ: TSLA) was officially welcomed to the prestigious S&P 500 index last week and its inclusion was certainly an unusual case study.
How Tesla fits in
Tesla is among the largest companies in the world and this created a series of challenges on how a $600 billion company can be added to the S&P 500 index. The company has seen its valuation skyrocket by more than 700% in 2020 which makes it the largest company to join the index.
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Never before has the index managers had to figure out how to balance the portfolio to make way for a new issue that accounts for 1.69% of the index.
Tesla’s size is even large enough to change the dividend yield of the index. Since the company doesn’t offer investors a dividend, the S&P 500’s dividend yield falls by default of its inclusion from 1.56% to 1.53%, Senior Index Analyst at S&P Dow Jones Indices told CNBC.
But on the other hand, Tesla’s large size means it could have an outsized influence on the index’s move, he said. Specifically, an $11.11 per share move in Tesla’s stock translates to a one-point change in the index.
Goldman Sachs analysts previously estimated that if Tesla was included in the index as of the start of January, the S&P 500 would be a full 2 percentage points higher. This means that instead of the index is up 13% for 2020, it would be up 15%.
Tesla is an expensive stock
Tesla also ranks as one of the more expensive stocks in
