The table shows the return as of the end of last month for each of the stocks involved in the Dow Dividend strategies shown. These returns are the percent changes from the closing 1996 prices to the prices at the cloase of last month. The first ten stocks are the ten highest yielding stocks at the end of 1996 sorted by increasing price. The price and yield at the end of 1996 are also shown. Eastman Kodak, which was on the 1996 BTD5 list, but is not the 1997 list, is shown because it is used in some strategies. The columns of Xs show which stocks are used in which strategies. The return for each strategy is shown at the bottom of the column. For comparison, the returns for the Dow Jones Industrial Average and the S&P 500 are also shown. All returns are price changes only and exclude dividends. With the exception of MF4, the strategy returns are the average return for the stocks in the strategy. This is equivalent to assuming that an equal dollar amount was invested in each stock used for the particular strategy.
The strategies in the table are:
Dec 31, 1996 Change as Used in strategy (indicated by X): Stock Price Yield of 12/31/97 BTD5 High10 PPP MF4 LY 2YR
Intl Paper 40.50 2.5% 6.5% X X X X AT&T 41.75 3.2% 46.9% X X X XX X Gen Motors* 55.75 2.9% 14.6% X X X X Chevron 65.00 3.3% 18.5% X X X X X Minn M&M 83.00 2.4% -1.1% X X X X X DuPont* 94.13 2.4% 27.6% X X X Morgan JP 97.63 3.6% 15.6% X Exxon* 98.00 3.2% 24.9% X Texaco*,** 98.13 3.5% 10.8% X Phil Morr* 113.00 4.2% 20.1% X
East Kodak 80.25 2.0% -24.5% X X
Strategy Result as of 12/31/97: 17.1% 18.4% 46.9% 25.2% 5.4% 12.6% [ BTD5 High10 PPP MF4 LY 2YR ] DJIA change as of 12/31/97: 22.6% S&P 500 change as of 12/31/97: 31.0% * Exxon, Phillip Morris, DuPont, and Texaco have split during 1997. The prices shown in the table are the prices on 12/31/96 before the splits. General Motors distributed 0.06377 share of Raytheon for each GM share in December as part of the Hughes sale to Raytheon. The return shown for GM includes the value of the distributed Raytheon stock. ** Texaco was dropped from the Dow in March. Since the strategies are based on the end of year prices and dividends and call for holding the stocks for (at least) one year, Texaco will be tracked until the end of the year. However, it will not be a candidate for inclusion in the 1998 strategies.
All of the strategies except for the PPP are below the S&P 500 return for 1997 . That one and MF4 are the only two that literally "beat the Dow." AT&T, which had been a laggard for the first nine months of the year, took off and was the best performing of the stocks listed above for 1997 and the fifth best of the 30 Dow stocks at the beginning of the year. Consequently, the PPP and the MF4 were the best performing of the strategies shown after trailing all year. This rapid reversal shows the importance of sticking to your chosen strategy. Eastman Kodak, which is in the LY and 2YR strategies was the worst 1997 performer in the Dow by far.
Followers of these Dow dividend strategies should not get too excited about what happens during the year. The testing is done on a year-to-year basis and ignores the fluctuations during the year. Investors are best off doing the same.
Additionally, if investing following one of these strategies is considered a long-term proposition, as it should be, the poor performance of Kodak is even less worrisome. The 1998 strategies call for additional purchases of, or initial purchases of EK. One reason the strategies work is that the companies in the Dow are large and financially strong, so they can weather the times when their business is disappointing. These companies can be expected to get their acts together sooner or later, which will be reflected in the stock price. Longer term followers of the 2YR strategy have been holding Kodak for several years and show a nice profit in it despite the drop this year.