When I first started writing this blog post, I was going to call it “How to Invest Safely in Stocks.” My second recommendation was that beginners should start with a handful of the 30 stocks that make up the Dow Jones Industrial Average. Once I started digging through the numbers, though, I was a startled at what I found. Apparently, the blue-chip stocks aren’t the no-brainers most investors like to think they are.
Need proof? Check out this chart I put together of the 10-year returns for each of the 30 Dow Jones stocks:
| Company | 10-Year Stock Return | 10-Year Dividend Return on $1,000 investment | $1,000 is now worth |
| 3M Company | +46.6% | $590.94 | $3,458 (aided by a stock split) |
| Alcoa Inc. | -68.1% | $134.46 | $449.82 |
| American Express Company | +41.47% | $122.40 | $1,514 |
| AT&T Inc. | -31.8% | $357.12 | $1,024 |
| Bank of America Corp. | -51.8% | $718.58 | $1,109 |
| The Boeing Company | +12.54% | $218.16 | $1,311 |
| Caterpillar Inc. | +208.7% | $787.17 | $7,093 (aided by a stock split) |
| Chevron Corporation | +113.9% | $794.85 | $4,791 |
| Cisco Systems, Inc. | -7% | $7.20 | $933 |
| The Coca-Cola Company | +45.2% | $284.76 | $1,734 |
| du Pont | +11.1% | $372.72 | $1,462 |
| Exxon Mobil Corporation | +82% | $319.44 | $2,086 |
| General Electric Company | -61.9% | $200.4 | $572 |
| Hewlett-Packard Company | +2% | $123 | $1,129 |
| The Home Depot, Inc. | -32.7% | $117.58 | $780 |
| Intel Corporation | -29.7% | $136.54 | $825 |
| International Business Machines Corp. | +57.1% | $127.26 | $1,605 |
| Johnson & Johnson | +20.8% | $257.22 | $1,426 |
| JPMorgan Chase & Co. | -16.1% | $273.12 | $1,107 |
| Kraft Foods Inc. | +8.7% | $283.34 | $1,339 |
| McDonald’s Corporation | +198.4% | $387.25 | $3,351 |
| Merck & Co., Inc. | -51.2% | $218.70 | $698 |
| Microsoft Corporation | -20.1% | $416.64 | $1,998 |
| Pfizer Inc. | -56.3% | $196.56 | $634 |
| The Procter & Gamble Company | +68.6% | $607.79 | $3,884 (aided by a stock split) |
| The Travelers Companies, Inc. | +11.8% | $120.34 | $1,206 |
| United Technologies Corporation | +94.9% | $529.54 | $4,305 |
| Verizon Communications Inc. | -31.5% | $305.33 | $988 |
| Wal-Mart Stores, Inc. | +4.7% | $130.29 | $1,141 |
| The Walt Disney Company | +25.1% | $110.20 | $1,330 |
What’s startling is this: of the 30 stocks in the Dow Jones Industrial Average, 11 of them would actually be worth less or just about the same as they were 10 years ago (including dividends!). That’s remarkable considering I didn’t factor in inflation, which have averaged 2.4 percent over the past decade (per FinTrend.com).
That means your odds of throwing a dart at a list of the Dow stocks and hitting a winner are only around 63 percent. That’s not much better than going to the casino and counting a few cards at the blackjack table.
Before you toss your hands up and cash in your IRA for guns and ammo, though, I’d be remiss if I didn’t point out that the average return on $1,000 for the 30 Dow component stocks was $1,842 over the past 10 years. Indeed, a $1,000 investment in Caterpillar Inc. (NYSE:CAT) would be worth $7,093 today. That’s not bad, but seeing the returns from a company like GE, which has crumpled more than 60 percent over the past 10 years is scary. And this year hasn’t been kind to the Dow, either. Take a peek at the YTD returns on each of the component stocks:
| Company | Ticker | YTD Return | Dividend Yield |
| 3M Company | NYSE:MMM | -10.8% | 2.86% |
| Alcoa Inc. | NYSE:AA | -27% | 1.07% |
| American Express Company | NYSE:AXP | +3.9% | 1.61% |
| AT&T Inc. | NYSE:T | -3.17% | 6.05% |
| Bank of America Corp. | NYSE:BAC | -51.8% | 0.62% |
| The Boeing Company | NYSE:BA | -10.5% | 2.88% |
| Caterpillar Inc. | NYSE:CAT | -14.7% | 2.3% |
| Chevron Corporation | NYSE:CVX | +2.25% | 3.34% |
| Cisco Systems, Inc. | NYSE:CSCO | -25.8% | 1.6% |
| The Coca-Cola Company | NYSE:KO | +2.28% | 2.79% |
| du Pont | NYSE:DD | -12.1% | 3.74% |
| Exxon Mobil Corporation | NYSE:XOM | -4.02% | 2.68% |
| General Electric Company | NYSE:GE | -17.3% | 3.97% |
| Hewlett-Packard Company | NYSE:HPQ | -41.9% | 1.96% |
| The Home Depot, Inc. | NYSE:HD | -7.9% | 3.1% |
| Intel Corporation | NYSE:INTC | -7.85% | 4.33% |
| International Business Machines Corp. | NYSE:IBM | +8.33% | 1.89% |
| Johnson & Johnson | NYSE:JNJ | -1.51% | 3.6% |
| JPMorgan Chase & Co. | NYSE:JPM | -21.2% | 2.99% |
| Kraft Foods Inc. | NYSE:KFT | +6.47% | 3.46% |
| McDonald’s Corporation | NYSE:MCD | +14.3% | 2.78% |
| Merck & Co., Inc. | NYSE:MRK | -13.1% | 4.85% |
| Microsoft Corporation | NYSE:MSFT | -14% | 2.67% |
| Pfizer Inc. | NYSE:PFE | +0.9% | 4.52% |
| The Procter & Gamble Company | NYSE:PG | -4.07% | 3.40% |
| The Travelers Companies, Inc. | NYSE:TRV | -11.8% | 3.34% |
| United Technologies Corporation | NYSE:UTX | -14.02% | 2.84% |
| Verizon Communications Inc. | NYSE:VZ | -2.6% | 5.6% |
| Wal-Mart Stores, Inc. | NYSE:WMT | -3.23% | 2.80% |
| The Walt Disney Company | NYSE:DIS | -14.6% | 1.25% |
Just seven out of the 30 Dow component stocks have actually appreciated in value this year. That should give you pause before you invest in a high-profile company solely on the strength of its name and brand.
The Takeaway
Here are three key things I take away from the charts above:
1) Energy is the name of the game. One sector in the Dow has strongly out-performed others in recent years. Namely, oil (ala Chevron and Exxon). And I wouldn’t expect that to change – particularly as fears over inflation mount.
2) Banking stocks have a lot of ground to make up. The fact that JPMorgan Chase is down 16.1 percent over the past 10 years, and Bank of America’s down a whopping 51.8 percent could get you thinking banking stocks have to turn the corner soon. I’d argue there’s a lot of pain for them on the horizon, particularly with the imminent threat of inflation. Banks thrive and dive on interest rates, and all those fixed mortgages BAC’s underwriting at 3 percent could come back to bite them in a high-inflation environment. That’s a big part of why banking stocks have fallen in recent months, and it’s a trend I expect to continue.
3) Follow the macro-trends. If you would have invested $1,000 in gold at the start of 2001, you’d now be holding onto $6,797 in bullion. Energy and inflation are the stories du jour, and your portfolio should reflect that reality. No one can say the next 10 years will play out the same as the past 10, but we can say the demand for oil isn’t going away anytime soon, and neither is our government’s debt problem. You can’t afford to ignore the macro picture anymore, unless, of course, you’re happy rolling the dice in your IRA.
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