The Dogs Get Overheated
The Dogs of the Dow portfolio had put in a strong showing in the months leading up to August, making up all the lost ground from the weak first quarter. However, it appears that the dog days of summer were just too much for the lot, as the group collectively shed 1.01% of their market value in August. By comparison, the “non-Dog” components of the Dow advanced 2.22% for the month, while an equally weighted position in all 30 Dow Industrials would have shown a gain of 1.12%.
The major drags on the pack’s performance came from the telecom giants Verizon (VZ - Free Verizon Stock Report, down 4.9%) and AT&T (T - Free AT&T Stock Report, -3.4%). After hitting a 10-year high of $46.41 on July 18th, Verizon shares traded lower following the June-quarter earnings report. Although share-net posted a 12.3% year-over-year advance for the period, results from the company’s Wireline division softened compared to the prior year, with revenues falling 3.1%. However, this was more than made up for by strength at Verizon Wireless, where operating revenues rose 7.4%, to $18.6 billion. Moreover, wireless subscribers continued to consume bandwidth at a healthy clip, with data revenues increasing 18.5% in the interim, to $6.9 billion. We look for this to continue in the coming months, as Verizon Wireless is rolling out its 4G LTE (fourth-generation, Long-Term Evolution) mobile broadband network, the largest of its kind in the U.S.
Meanwhile, AT&T’s shares likely pulled back in anticipation of Apple’s (AAPL) new iPhone release, which would impact margins at the company’s key wireless division. This is largely due to the fact that the company is subsidizing the cost of the popular phone. But overall, we continue to look for the telecom provider to benefit as more of its traditional mobile customers switch to smartphones and tablet PCs (and dramatically increase their data usage), and as more devices are hooked up to the company’s national wireless network.
Back In The Black
Procter & Gamble (PG - Free Procter & Gamble Stock Report) has had the toughest year of this bunch, at least in terms of share price performance. The consumer products giant was weighed down through the first seven months by slow economic growth, rising commodity costs, and negative currency effects. However, the company delivered higher-than-expected fourth-quarter earnings (year ended June 30th), fueled by strategic price increases and stout sales of some of its feature brands; including Gillette razors, Crest toothpaste, and Tide detergent. Also, management further raised investor hopes by announcing plans to buy back $4 billion of its shares in fiscal 2013. The news helped fuel a gain of 4.1% for the month, lifting PG shares into the black by 0.7% for the year to date.
Also putting in a good turn were shares of Kraft Foods (KFT - Free Kraft Foods Stock Report), which rose 4.5% last month, with an overall gain of 11.1% for the year through August. In addition to maintaining solid operational performance, the giant food processing company has been in the spotlight thanks to its plans to spin off its North American grocery business into a new entity to be named Kraft Foods Group (trading under the ticker symbol KRFT) on October 1st. The remainder of the company, consisting of the international snacks business, will then be renamed Mondelez International (MDLZ) and be led by Kraft’s existing CEO. It also should be noted that with the change, Kraft will no longer be a Dow component, soon to be replaced by UnitedHealth Group (UNH). For our purposes, however, we will continue to track the performance of the new entities in the Dogs portfolio.
Year To Date, It’s Still Neck And Neck
Despite the recent performance slip, these unpopular mutts are still putting up a solid showing overall, with the group posting a gain of 9.4% for the eight months through August. Although this is seven basis points less than the score for the Dow as a whole, we again point out to readers that the Dogs were the 10-highest yielding blue-chip issues at the start of the year, thus they maintain an overall edge in terms of total return by a nose. In terms of performance for the year so far, the lead Dogs didn’t change from the prior month, with the pack headed by AT&T (up 21.2%), General Electric (GE - Free General Electric Stock Report, up 15.6%), and Merck & Co. (MRK - Free Merck Stock Report, up 14.2%).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.