Courtesy of Benzinga.
For as long as it has been around, investors have made a big deal about the Dow Jones Industrial Average. Like it or not, that may never change, but the reality is the Dow is home to just 30 stock. In other words, it’s not the most accurate representation of U.S.-listed stocks.
Heck, it’s a price-weighted index, meaning the most expensive stock of the 30 by price tag, regardless of market cap, has the most pronounced impact on the Dow’s daily performance.
Indeed, the Dow is somewhat of a flawed concept as far as indexes go, but it is home to some of the most venerable names in American business. And some very consistent dividend payers. Procter & Gamble (NYSE: PG) has raised its dividend every year for over five decades. Coca-Cola (NYSE: KO), Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM), just to name a few, are all working on multi-decade dividend streaks.
Impressive, but it’s worth noting that many of the Dow’s components have non-Dow rivals that either offer better dividends or have outperformed the Dow equivalents over various time horizons. Let’s have a look at some Dow stocks that have direct rivals you might be better off.
Pfizer (NYSE: PFE): Or Merck (NYSE: MRK). Or Johnson & Johnson (NYSE: JNJ). All three have been outperformed by Abbott Labs (NYSE: ABT) over the past five years and by wide margins at that. Abbott’s 3.6% yield puts it below Pfizer and Merck and in a tie with J&J, but Abbott is the only one of these stocks with positive returns over the past five years and it’s a solid dividend payer in its own right.
Kraft (NYSE: KFT): The largest U.S. food company has more than doubled its dividend since 2001. Rival General Mills (NYSE: GIS), the second-largest U.S. food company, has also more than doubled its dividend since 2001. Kraft is up just over 3% in the past five years. General Mills is up almost 40% in that time. Is this really even a competition? Someone ought to send this memo to Warren Buffett, a major Kraft shareholder.
Exxon Mobil: Or rival Chevron. The two Dow components are also the two largest U.S. oil companies. In the past five years, shares of Exxon are basically flat, but Chevron has jumped roughly 40%. That may sound good, but try Occidental Petroleum (NYSE: OXY) on for size. The dividend has nearly quadrupled in past decade and the stock has doubled in the past five years. Plus, Occidental, the fourth-largest U.S. oil company, doesn’t drill offshore. That significantly lowers the company’s risk profile compared to its larger rivals.
Caterpillar (NYSE: CAT): This one isn’t going to be a dividend competition because the yields on these two stocks aren’t great. Caterpillar, the world’s largest maker of construction and mining equipment, is up just over 54% in the past five years. That’s nice, especially with the financial crisis being part of the last five years. Thing is Joy Global (Nasdaq: JOYG) has nearly doubled Caterpillar’s returns and Joy Global has been rumored to be a takeover target.
General Electric (NYSE: GE): Giving credit where it’s due, we should tell you that GE has at least been trying to restore the dividend it cut during the financial crisis. Still, the stock has plunged nearly 60% in the past five years. It might be wise to exchange GE for Emerson Electric (NYSE: EMR). Emerson’s dividend has more than doubled in the past decade and that includes no cuts during the financial crisis. Oh yeah, the stock is up almost 21.4% in the past five years. That seems a lot better than GE, doesn’t it?
Bull case: Three of these stocks are ideal for conservative investors: Abbott, Emerson and General Mills. With Joy Global and Occidental, your risk profile rises and those stocks will need commodities demand to be boosted by an improving global economy. Still, excluding Joy Global, the other four are working on impressive dividend increase streaks and those should continue.
Bear case: The bear case would be horrific because it would likely mean an economic disaster that wrecks the balance sheets of all the stocks mentioned here, imperiling dividend and capital growth along the way. Remember with this list that just because we’re suggesting alternatives to Dow stocks doesn’t mean the Dow stocks will outperform in a short-lived bear market. If every stock mentioned here is slumping at the same time, it’s probably time to move to cash.
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