Dow Plunges: How Did McDonald's, AT&T, and Coca-Cola Hold Firm?

Even in a big downdraft for the Dow Jones Industrials, McDonald's and AT&T posted gains, while Coca-Cola had only minimal losses. Find out what happened here.

Apr 10, 2014 at 9:05PM
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Thursday was a nightmarish day for the Dow Jones Industrial Average (DJINDICES:^DJI), which plunged 266 points to post its worst decline since early February and reversing the gains it had earned earlier in the week. But even though the Dow tumbled, McDonald's (NYSE:MCD) and AT&T (NYSE:T) actually managed to gain on the day. Moreover, although Coca-Cola (NYSE:KO) wasn't quite as lucky as those Dow components, its losses were relatively minimal. How did these three stocks escape Thursday's carnage, and will they continue to outperform the Dow Jones Industrials going forward?

Looking for reliability
One of the most obvious characteristics that all three of these members of the Dow Jones Industrials possess is that they're all solid dividend stocks. Coca-Cola and McDonald's have dividend yields higher than 3%, while AT&T carries the Dow's highest dividend yield, at more than 5%. When the stock market starts to perform badly, many investors fall back on dividend-paying stocks, especially those that have reliable track records of increasing their payouts even during bad market conditions. Coca-Cola tops that list with a 52-year streak of consecutive annual dividend increases, but McDonald's 38-year string of rising dividends and AT&T's 30-year streak also qualify for the prestige of being Dividend Aristocrats -- an exclusive list of just a few dozen companies that have made annual dividend boosts for at least a quarter-century.

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Source: McDonald's.

In addition, those who remember the bear market of 2008 know that some stocks contributed more to the Dow's plunge that year than others. Remarkably, McDonald's managed to gain almost 9% that year, and while AT&T and Coca-Cola did have dramatic losses in the 25% to 30% range, they were still markedly better than the Dow's 34% decline.

Admittedly, these three Dow stocks have all gone through some challenges lately. For McDonald's and Coca-Cola, growth has been hard to come by, with McDonald's having to fight against rival fast-food companies, while Coca-Cola deals with a growing movement away from its namesake carbonated beverages. AT&T has also had to deal with competition, although initiatives to broaden its highest-speed Internet service have promising implications for its future.

Ko

But perhaps the biggest factor in favor of these stocks is that they haven't seen the recent share-price gains that the rest of the Dow has experienced. If the downturn continues, then investors might well rotate out of other high-flying stocks into laggards like Coca-Cola, McDonald's, and AT&T -- all of which have seen their share prices decline during the past year.

Obviously, there's nothing about these three Dow stocks that guarantees that they're insulated from any further shocks that send the Dow Jones Industrials down further. But at least during this correction, AT&T, McDonald's, and Coca-Cola might continue to get looks from those who haven't paid enough attention to those dividend stalwarts for a while.

The nine-minute dividend strategy you need to know
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks, as a group, handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks, in particular, are the best. With this in mind, our top income analyst put together a report outlining a simple nine-minutes-a-year dividend strategy that should be in every income investor's toolkit. To learn more about this "tax-skipping" dividend trick, all you have to do is click here now.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and McDonald's. The Motley Fool owns shares of Coca-Cola and McDonald's and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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