Sometimes the most memorable brand names are those that we grew up with during childhood. The product labels and logos are etched in our minds. The tastes and smells of our favorite foods and drinks are inseparable from the companies themselves.
For the blue chip companies in the Dow Jones Industrial Average (INDEX: ^DJI), this lifelong relationship with the consumer and top-of-the-mind awareness permeates their advertising strategies. However, some companies translate their brand names into stock market returns, while others allow this competitive advantage to erode over time. Let's take a look at the top brands in the Dow and how their stocks have performed against the broader index average during the past decade.
The Fab Five
Since 2001, the branding consultancy firm Interbrand has published an annual survey disclosing the best global brands. As shown below, four out of the top five brands all belonged to Dow companies in 2011.
|
Rank |
Brand |
Sector |
Brand Value (millions) |
|---|---|---|---|
| 1 | Coca-Cola (NYSE: KO) | Beverages | $71,861 |
| 2 | IBM (NYSE: IBM) | Business services | $69,905 |
| 3 | Microsoft (Nasdaq: MSFT) | Computer software | $59,087 |
| 4 | Internet services | $55,317 | |
| 5 | General Electric (NYSE: GE) | Industrial conglomerate | $42,808 |
Source: Interbrand Survey 2011.
Amazingly, these same Dow companies have claimed four of the top five spots every year since the inception of the Interbrand survey. The fifth spot, on the other hand, has consistently been a revolving door of tech companies: Nokia, Intel, and more recently Google have claimed this position at one point or another.
Besides Microsoft, the Dow brands listed above have all been around for over 100 years, building exposure to generations of customers. While the returns for these companies have all been astronomical since their incorporation, the past decade has unfolded quite differently for shareholders of these companies.
Big brands versus the Dow
A quick look at the stock charts for the top four brands in the Dow shows that only IBM has significantly outperformed the index since 2002. The rest of the pack, along with the broader market, experienced a rather tumultuous ride through the 2000s (especially during the recent financial recession). Investing in the Dow Jones Industrial Average through an exchange-traded fund would have brought higher returns than holding shares in any of the other companies during this decade.
Do brands power a portfolio?
In short, a brand name matters, but it's only one piece of the puzzle for superior shareholder returns. Sure, these Dow powerhouses spend enormous amounts of time and money crafting their global brands, but ironically none of the four companies even made the top 10 list when it came to advertising spending in 2010. According to AdAge, two other Dow blue chips, Procter & Gamble and AT&T, topped the list. Furthermore, larger Dow companies find it more difficult to provide outsized returns for investors due to their huge size and foothold in nearly every global market. For this reason, our Motley Fool analysts have identified a few smaller companies with impressive global brands that still have plenty of room to expand around the world. For a rundown of three American companies set to dominate emerging markets, download our special free report, "3 American Companies Set to Dominate the World." It's only available for a limited time, so click here now.
