The Most Amazing Thing About the Dow's Record Rally

For more than five years, the Dow has soared, yet one thing has shockingly remained constant. Find out what it is and why it matters.

Jul 5, 2014 at 1:02PM

The Dow Jones Industrials (DJINDICES:^DJI) celebrated another milestone this week, climbing above the 17,000 level for the first time ever. When you consider that the Dow was well below 7,000 when the bull market began in March 2009, the Dow's 10,000-point ascent carries even more weight. Yet shockingly, this huge recovery in the Dow's fortunes has come without dividend investors having had to pay the price of lower yields. The reason: dividend payments among Dow stocks have amazingly kept pace with the stock market's gains.


The Dow's dividend strength
The Dow has always been well-known for rewarding dividend investors with dependable quarterly payments from its components. Although it hasn't always been the case, the current slate of 30 Dow components all pay quarterly dividends, and all but half a dozen of them pay respectable yields of 2% or more. When you take the average yield of all 30 Dow components -- weighted not by their respective share prices but merely as an overall mean -- the Dow currently sports a 2.56% yield.

With the Dow having soared so far in recent years, you'd think that this yield would be far below past levels. But as you can see below, the Dow's average dividend yield has stayed remarkably constant over the past five years:

Dow Div Yield
Data source: Dogs of the Dow.

The obvious question is how the Dow Jones Industrials have been so successful at sustaining a strong dividend yield. Two contributing factors have played the biggest role in keeping Dow dividend yields high.

How the Dow kept dividend investors happy
First, most of the Dow's component stocks have done a good job of boosting their dividends since the end of the financial crisis. Disney (NYSE:DIS) isn't the perfect example of an ideal Dow dividend stock, as its yield has been stubbornly stuck at the 1% level for years. But given that the stock has jumped 150% since the end of 2009, even holding its dividend yield steady means an equal jump in its annual dividend payment over that timeframe.

Other Dow stocks have managed to increase their dividend yields over the past five years. Cisco Systems (NASDAQ:CSCO) just started paying a dividend in 2011, but it now yields a healthy 3%. Oil giant ExxonMobil (NYSE:XOM) has historically rewarded shareholders with both high dividends and big share buybacks, and its yield has increased by a quarter percentage point in five years despite seeing impressive share-price gains.

But the other aspect that has helped the Dow's average dividend yield rise has been smart replacements of stocks that weren't making the dividend grade. The replacement of Citigroup and General Motors in 2009 eliminated two stocks that weren't paying any dividends at all, and Alcoa's and Bank of America's (NYSE:BAC) removal from the Dow last year also took out stocks with subpar yields. Their replacements haven't always been big dividend payers, but as Cisco's experience shows, the new Dow components have plenty of potential for future dividend growth.

Yield isn't the end-all be-all for dividend investors, but it's still impressive that despite its huge rise, the Dow Jones Industrials have still managed to sustain their average dividend yields. That experience should give Dow investors confidence that even if the Dow's gains start to slow, dividends will continue to play a vital role in the total return investors earn from their portfolios.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Dan Caplinger owns warrants on Bank of America and shares of Walt Disney. The Motley Fool recommends Bank of America, Cisco Systems, General Motors, and Walt Disney and owns shares of Bank of America and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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