What's a Point? How the Dow Keeps Score

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The following video is part of our "Motley Fool Investing Basics" series, in which Motley Fool contributor and financial planner Dan Caplinger discusses topics from around the investment world.

Today, Dan looks at the Dow Jones Industrial Average to answer a very basic question: What do points in the Dow mean? Unlike stocks, where a "point" is a dollar, the value of Dow points isn't nearly as clear. As Dan describes, stock splits and component replacements over time require changes to what's known as the "Dow divisor" in order to keep the Dow consistent over time. Despite its flaws, the Dow's point system is an easy way for the public at large to track the stock market, and Dan thinks it's worth holding onto.

Unfortunately, Dow points don't reflect another important part of the Dow's returns: dividends. Over time, the Dow's dividend stocks have provided investors with some impressive gains. Find out more from the Fool's brand-new special report: "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so just click here and get your copy today.

Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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