Bulls are celebrating the Dow Jones Industrial Average and an ETF tied to the venerable stock index breaking out to all-time nominal highs this week.
However, the picture looks different when the impact of dividends and inflation on SPDR Dow Jones Industrial Average ETF (DIA) are considered.
On Tuesday, headlines trumpeted the Dow’s record close. [Dow All-Time High, S&P 500 ETF Within 2% of Record]
“But is it really?” writes says Daniel Wiener, editor of The Independent Adviser for Vanguard Investors. “In one sense, yes. We’ve never seen the Dow index close above the 14164.53 it set on Oct. 9, 2007.”
Yet when dividends are factored in, on a total return basis the Dow “has actually been setting highs regularly since 2011,” Wiener said in a note Tuesday. “When you count dividends the Dow hit a new record on Apr. 29, 2011, and then didn’t surpass that level until Jan 8, 2012. But then it was off to the races and the Dow hit 31 record highs in 2012. If it closes higher today, it will have hit 16 new closing highs so far in 2013.”
On a nominal basis, the Dow ETF is up about 10% the past three months during its rally to all-time highs. The fund has posted a five-year annualized return of 5.8%, according to Morningstar.
Still, that performance looks less impressive when inflation is accounted for, Wiener points out.
“Since the end of October 2007 inflation has risen about 10.5%,” he wrote. “If you adjust the Dow’s closing high on Oct. 7 2007 to today we’re still shy 9.8%. And if you were to go back to the high set on Jan. 14, 2000, the Dow’s close today is 12.3% shy of that record. So, I’d say we still have a long way to go before we can really say we’ve caught back up to prior highs.”
SPDR Dow Jones Industrial Average ETF
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- Dow Jones Industrial Average