FR: Decades of Great Performance from 9 Dow Stocks

Article: Decades of Great Performance from 9 Dow Stocks

My next “Fool Revisited” piece is the third entry from my mini-series on the Dow Jones (you can read Part 1 and Part 2 at those links). Like the previous articles, I broke the 30 components of the Dow into 4 groups based on how long they have been assigned to that garbage index (you’re weekly reminder that I really hate the Dow Jones Industrial Average), and the group below had been on the Dow for at least 20 years at the time of article publication. And unlike the previous articles, all nine stocks profiled are still in the DJIA.

The intent of this series was to introduce the members of the Dow, and the next logical step was to discuss whether or not a company’s placement on the Dow affected stock performance. Unlike the members of the S&P 500 – which find homes in a LOT of institutional funds – the number of Dow funds and ETFs out there are pretty limited.

This is often why you’ll see above average gains in a stock when it is added to the S&P 500, since there are hundreds – if not thousands – of stock funds and ETFs that must purchase shares in the company. The inverse is true as well; when a stock is removed from the S&P 500, it tends to be sold off a bit and lose some value. This doesn’t appear to be the case with the Dow, but it is definitely something that I want to look at in a bit more detail in the near future.

Though it was a longer time period in the original article (between 20 and 30 years), only three of the nine Dow stocks profiled have improved on the CAGR presented in my article from 6+ years ago: Boeing (NYSE: BA), Walt Disney (NYSE: DIS), and JPMorgan Chase (NYSE: JPM). The others have done alright, though International Business Machines (NYSE: IBM) has actually lost money (though not much) for investors since article publication. The performance of all of the nine companies (from November 5, 2011 through March 2, 2018):

Stock Start Price End Price CAGR Total Growth Value of $10,000
IBM $155.48 $154.49 -0.10% -0.64% $9,936
Merck (NYSE: MRK) $27.45 $54.36 11.41% 98.03% $19,803
American Express (NYSE: AXP) $46.78 $95.60 11.96% 104.36% $20,436
McDonald’s (NYSE: MCD) $77.20 $148.27 10.87% 92.06% $19,206
Coca-Cola (NYSE: KO) $28.01 $43.72 7.29% 56.09% $15,609
Boeing $55.86 $344.67 33.33% 517.02% $61,702
The Walt Disney Company $31.47 $102.99 20.61% 227.26% $32,726
Caterpillar (NYSE: CAT) $79.57 $146.38 10.12% 83.96% $18,396
JPMorgan Chase $28.74 $113.32 24.22% 294.29% $39,429
S&P 500 $1,253.23 $2,691.25 12.84% 114.75% $21,475

Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits

The big winner here is Boeing, with returns nearly 5x better than the S&P 500. They are known more for their jets, but they are also a prime contractor with the Department of Defense, something that has helped to boost them and other defense contractors over the past few years. Disney and JPMorgan Chase also performed well, vastly outperforming the others and the S&P.

The big loser here – “Big Blue” aka IBM – probably has its best days behind it. I wouldn’t be shocked to see it as one of the next few stocks to fall out of the Dow, though it’s higher price may make it a bit safer than the likes of General Electric. Though the criteria to be included in the Dow is kind of murky, many companies have been replaced in the past few years due to poor performance of the stock, often replaced by companies with a higher share price or growth potential. It has been a long time since the Dow Jones Industrial Average actually reflected the leading industrial companies of the United States, and as I have mentioned before, it long ago lost its place as the preeminent index to the S&P 500. Nevertheless, a company’s place in the index is still highly reported, and it maintains some prominence in the markets today, if only as a talking point about how “the market” is doing.

Until next time…

Disclaimer: I do not own currently own shares in any of the mentioned companies, though I did purchase shares on behalf of my mother in her portfolio that I manage. However, I have no plans to purchase shares of any company within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.

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