dow jones

Dow Jones Stocks: The DJIA tips, stocks and profiles

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The Dow Jones Stocks are one of the most quoted indexes in the world, and are often used as a barometer of not just the US economy, but to an increasingly large extent the world economy. But the Dow Jones wasn’t always this important.

Dow’s Early Start

The origins of the Dow Jones Industrial Average were at the end of the 19th Century when Charles Dow, the founder of the Dow Jones & Company, created the index to measure and track the value of just 12 Dow Jones Stocks from the best industries in America.

While this wasn’t the first of Charles Dow’s indexes, it became the best known and has influenced Wall Street, Main Street and Washington for more than a century since its creation.

While the formula is something of a complexity and is based on the Dow Divisor (currently approx. 0.13231925), the index is referred to as an average of the price of the components. The math involved is statistical, and perhaps a little obscure.

Currently, the DJIA consists of 30 Dow Jones Stocks, all of which Successful-Stock-Trading will be examining in the coming months. So readers will be able to follow up on some of the highlights of each company’s history, current situation, and performance.

The Components of the Dow

The Components, 30 in all, are listed below. Please note that the list contains all the current members, but that from time to time the actual composition of the Index may vary.

Company Name Symbol Business
3M MMM Conglomerate
Alcoa AA Aluminum
American Express AXP Consumer finance
AT&T T Telecommunication
Bank of America BAC Banking
Boeing BA Aerospace and defense
Caterpillar CAT Construction and mining equipment
Chevron Corporation CVX Oil & gas
Cisco Systems CSCO Computer networking
Coca-Cola KO Beverages
DuPont DD Chemical industry
ExxonMobil XOM Oil & gas
General Electric GE Conglomerate
Hewlett-Packard HPQ Technology
The Home Depot HD Home improvement retailer
Intel INTC Semiconductors
IBM IBM Computers and technology
Johnson & Johnson JNJ Pharmaceuticals
JPMorgan Chase JPM Banking
Kraft Foods Inc. KFT Food processing
McDonald’s Corp. MCD Fast food
Merck MRK Pharmaceuticals
Microsoft Corporation MSFT Software
Pfizer PFE Pharmaceuticals
Procter & Gamble PG Consumer goods
Travelers TRV Insurance
United Technologies Corporation UTX Conglomerate
Verizon Communications VZ Telecommunication
Wal-Mart WMT Retail
Walt Disney DIS Broadcasting and entertainment

Recent additions to the index in the past two years include: Kraft Foods, Inc. after it was spun off from Philip Morris (aka Altria). Travelers Companies and Cisco Systems in 2009 replaced two venerable names from the list: General Motors and Citibank.

Investing with the Dow

There are quite a few strategies to investing with the Dow Jones stocks: from buying individual components to buying the entire index in an ETF.

ETFs

There are several ETFs that aim to match the price movement in the Dow Jones. One popular choice is the Diamonds ETF, first introduced in 1998 from a family of ETFs known as SPDRs. I’m currently holding some Diamonds in my stock account, and regularly get updates and dividends paid out (usually monthly).

Souped-up ETFs

You can also buy DJIA ETFs that promise to either match the daily performance of the index or do the exact opposite upto 300% of the change.

There are other strategies that involve buying a weighted short list from the components that are undervalued, and holding them with their more generous dividends payouts and potential for price increase in the stock value.

Dogs of the Dow

One of the most famous of these strategies is the Dogs of the Dow first made popular by Michael O’Higgins in 1991.

It goes thus: Investors in the Dogs of the Dow strategy believe that large companies do not often vary their dividend simply to reflect current market values, and that the dividend is akin to a measure of the value of the company’s worth. In contrast, the stock price itself can vary considerably through the business cycle.

Therefore, dogs of the dow investors will buy those that are relatively undervalued by stock price, and will receive more upside potential as well as a reasonable regular and stable dividend. Rinsing and repeating the process will lead to higher longer term returns than just buying the full index.

Of course, events in 2009/10 have proved that even substantial companies, like Citibank, GM, and others can find themselves undergoing exceptionally bad cycles in which bankruptcy (as in GM’s case) becomes the only way to save the company.

In those extreme cases, stock investors usually lose their shirts. Fortunately, this higher risk usually rewards more patient investors as well. If you are interested in finding out more about this way of investing, check out the Dogs of the DowWebsite which has very complete stats and information on current incumbents.

Updates: Coming through 2010

I’ll be expanding this page and its related content on a regular basis as I find more information and products. I’ll also be updating the list of Dow Jones Stocks, too. So do remember to bookmark this page, and check back each month or so.

Citigroup – is it sleeping now (NYSE: C)

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This is the sixth installment of my look at the Dow Jones Companies, the thirty finest American companies. Today we’ll be looking at Citigroup. This company is now trading somewhat in the doldrums due to the rather tricky credit crunch. Having already looked at JP Morgan, many banks are under pressure, underwater, could this be the right time to buy into the banking sector?

Citigroup (NYSE: C)

Citigroup is a worldwide financial service with 200 million accounts in more than one hundred countries. It provides a range of financial products to governments, consumers and corporations that includes investments, brokerage accounts, wealth management and consumer banking and credit. It merged with Travelers Group in April of 1998 and as of 2008 is one of the world’s largest banks (having dropped from first place just recently).

Early History

Citigroup began in 1812 as the City Bank of New York. As the company grew and absorbed other businesses and banking institutions, it diversified to include many different financial interests such as insurance companies and brokerage firms. Because of the diversity of its many branches, each balances out the other as financial cycles rise and fall.

Citigroup has historically been a very good investment due to this long-range planning for stability. However, the corporation has been involved in many questionable practices. In 2004, Citigroup disrupted the European bond market by selling billions in bonds and then buying them back cheaply when their trades forced the market to drop.

Would you tell your grandmother?

In 2005 the NASD levied more than $21 million in fines against Citigroup for violating mutual fund sales practices. In 2007, NASD again fined Citigroup more than $15 million for misleading retirees in seminars and not adequately disclosing risks to those investors. The banking institution was also heavily implicated in the Terra Securities scandal which negatively impacted the United States bond market. Just this year, in 2008, the attorney general of California disclosed that Citigroup was guilty of a computerized “sweep” that robbed its customers, mostly poor or recently deceased, and deposited their money in the bank’s general fund without notifying the victims of the robbery.

A Laggard, Really

Citigroup has underperformed for the past half decade, showing losses in nearly every quarter according to the Dow Jones Industrial Average index. Although the diversity of financial products and investments would seem to make Citigroup an excellent choice for a healthy portfolio, its questionable business practices and recent poor decisions should be cause for second thoughts. Whether or not business ethics matter to you as an investor, the recent spate of bank failures combined with Citigroup’s losses in the past few years indicate that a great deal of caution is advisable when considering Citigroup as an investment.

Caution is certainly the word: having grown its dividend steadily for years, the recent losses forced Citigroup to cut its dividend from 54 cents to 32 cents, this bank may warrant careful scrutiny if you should be interested in it. It currently falls at or near the bottom of the Dow Jones, and is of interest to Dogs of the Dow investors. But a look at the charts indicate that it has lost more than 60% of its stock value since the latter part of 2007. It is currently still loss making. Are you willing to take a punt? But then when there are still lots of other profit making banks out there, why would you?

Quotation: 300-point rallies in the Dow happen in bear markets

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We’re in a very confusing atmosphere. People didn’t really know what to make of a 300-point rally in the Dow the other day, but my main message was that 300-point rallies from the Dow don’t happen in bull markets.

In fact, they never happened in the bull market from October ’02 to October ’07, but it has happened 6 times in this bear market and happened 12 times in the last bear market.

You don’t get moves like that in bull markets. As Rich Bernstein has said time and again, “This is the hallmark of a recession and a hallmark of a bear market.”

David A. Rosenberg, Conference Call Notes, published under the title “The Elusive Bottom” at InvestorInSight, August 2008.