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There's a new look for the Dow Jones Industrial Average. Say hello to AIG, Pfizer and Verizon and bid farewell to A&T, Eastman Kodak and International Paper.

People often look at the Dow as a window for viewing the U.S. corporate landscape. When Wall Street Journal co-founder Charles Dow created the index in May 1896 to track a dozen companies, he gave a numeric value of 40.94 -- simply the average price of those 12 stocks. By 1928 the index included 30 companies, and because of events such as mergers, spin-offs and stock splits, is now a weighted average divided by a "divisor" that is currently less than 1.

The Dow was also designed to reflect trends and strength of the U.S. economy, at least as viewed by one person, the Journal editor, who has the last word on what stocks will be included in the index. Only General Electric remains from the original components of the Dow, while American Cotton Oil, American Sugar, American Tobacco, Tennessee Coal and Iron, and U.S. Leather, among others, have gone the way of the buggy whip along with many of the agricultural and mining concerns that dominated the U.S. economy at the turn of the 20th century. They were replaced by companies that represented the economic shift toward manufacturing and basic materials. So it should come as no surprise that as the U.S. economy shifts from manufacturing to service, the index changes to reflect the 21st century.

Dow kiddies Verizon is the third corporate child to replace its parent -- it was the product of the break up of AT&T in 1982. Exxon was a grandchild of the Standard Oil trust bust of 1911; and Liggett & Myers was a product of the American Tobacco Trust bust also of 1911. Exxon of course merged with Mobil to form ExxonMobil. Liggett and Myers was replaced by American Tobacco B shares in May 1926, which then became American Brands in 1969.

Some complain that the Dow is not a true reflection of the market, as it contains just 30 stocks as opposed to the S&P which tracks 500 stocks, or even broader measures such as the Wilshire 5000, but it is clearly the best known stock index in the world. When people talk about the stock market, they usually refer to the Dow.

Yet membership in the Dow has little or no effect on most portfolios. For instance, Neil Hennessey, president and portfolio manager of the Hennessey Funds, says the change in the Dow doesn't mean a lot in terms of yield. Before this most recent change, the Dow was yielding 2.2 percent. With the new additions, the Dow yields 2.1 percent. The swap of Pfizer for Eastman Kodak was pretty much a wash as they both have a yield of 1.9 percent; Verizon for AT&T saw a bit more of a spread with Verizon yielding 4.2 percent versus 4.8 percent for Ma Bell.

The big difference may be the switch to AIG from International Paper. While AIG yields 3.6 percent to Paper's 2.4 percent, AIG made $3.90 per share last year while it paid its shareholders 26 cents per share, International Paper made 80 cents and paid its shareholders $1.

The Dow is a very resilient index, Hennessey notes. The last changes to the index came Nov. 1, 1999 when the Journal editors removed Union Carbine, Goodyear Tire and Rubber, Sears and Chevron and replaced them with Home Depot, SBC Communications, Microsoft and Intel. Since their addition in 1999 until March 31 of this year, that quartet of newcomers posted an average loss of 36 percent, Dow gained 5.12 percent overall.

Hennessey also points out that there are only $20 billion worth of funds indexed to the Dow Jones Industrial Average, compared to over $1 trillion indexed to the S&P. It's far more important to a company to be added to the S&P 500 than the Dow, and far worse to be removed, because nearly every major brokerage house manages millions of dollars tied to S&P indexed funds. If the S&P 500 composition changes, those indexed funds must change their holdings accordingly. Thus, investors in AT&T, Eastman Kodak and International Paper haven't suffered sharp price drops as they still remain part of the S&P 500 along with AIG, Pfizer and Verizon.

The only investors affected much by Dow changes are those who the so-called Dogs of the Dow strategy that recommends buying the 10 highest-yielding Dow stocks, the idea being that you buy into cash-rich but out-of-favor companies, since yields always move in the opposite direction as prices. Joining Citigroup, Du Pont, General Electric, General Motors, JP Morgan-Chase, Altria, Merck, SBC Communications and ExxonMobil in the dog house is Verizon.

Proponents point out that Dog investing outperformed major indices from 1973 through 1996. Critics point out that a high yield sometimes indicates a serious problem, and note more recent performance: the Dogs lived down to their name from 1997 through 1999, underperforming the market in each of those years. So far this year, the dogs aren't barking very loudly: Investors that bought the dogs at the end of 2003 are pretty much even with the overall Dow, both virtually flat year-to-date. Verizon may change all that, as it is up 6.3 percent since the start of the year.