Dow 30 Stock Roundup: Caterpillar Raises Dividend, Boeing Slips on Cantor Defeat - Analyst Blog

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The Dow had a mixed week after World Bank data and the Iraq crisis ended a period of considerable gains. Mergers and acquisitions helped the blue chip index close at a record level for the ninth time this year on Monday. Investors took a breather on Tuesday, but the Dow still managed to inch upward. The blue chip index snapped a four day rally on Tuesday after the World Bank lowered global growth projections. The Iraq conflict and dismal economic data pushed the Dow lower on Thursday. During the first four trading days, the Dow has lost 1.23%.

Last Week's Performance

The Dow gained 0.5% on Friday following the encouraging nonfarm payroll report for May. Investor sentiment turned bullish after the U.S. Bureau of Labor Statistics said total nonfarm payroll employment jumped 217,000 in May, more than the consensus estimate of a rise by 213,000. Nonfarm payroll jobs increased by over 200,000 for the fourth straight month in May, a stretch last seen in January 2000. Unemployment rate stayed flat at 6.3%.The blue-chip index also closed at a record level for the eighth time this year.

For the week, the Dow gained 1.2%. The blue-chip index recorded its strongest weekly percentage gains since April 17. Benchmarks ended in positive territory for the week following the announcement of several stimulus measures by the European Central Bank (ECB). The central bank reduced the refinancing rate to 0.15% from 0.25% and the marginal lending facility to 0.40% from 0.75%. ECB also cut deposit rates to minus 0.10%.

ECB deployed a series of targeted long term refinancing operations and announced that it will halt sterilizing purchases under its Securities Market Program. Separately, ECB President Mario Draghi said preparations for outright purchases of asset-backed securities have started.

Encouraging services sector report and upbeat ISM manufacturing data also helped the benchmarks finish in the green for the week. The ISM Services Index in May touched the highest level since August 2013, increasing 1.1 percentage points to 56.3% from April's reading of 55.2%. The May 2014 Manufacturing PMI increased 0.5 percentage points to 55.4%.

The Dow This Week

Merger and acquisition activities and a rally in small-cap stocks propelled benchmarks to record highs on Monday. Merck & Co. Inc. ( MRK ) agreed to acquire Idenix Pharmaceuticals Inc. ( IDIX ) for $24.50 per share, which values the company at $3.85 billion. The acquisition will give Merck access to Idenix's treatments for hepatitis C. Shares of Idenix Pharmaceuticals more than tripled, gaining a significant 229.1%. Shares of Merck also increased 0.2%. The blue-chip index gained 0.1%.

The Dow gained a meager 0.02% on Tuesday after investors took a breather. However, the minute gains helped the blue-chip index close at a record level for the tenth time this year. Wholesale inventories increased 1.1% in April, beating the consensus estimate of an increase of 0.5%. Job openings at US workplaces rose to 4.46 million in April from 4.17 million in March, more than analysts' expectations of a rise to 4.03 million. However, these reports hardly impacted the markets.

Benchmarks dropped the most in three weeks on Wednesday after World Bank lowered projections for global economic growth. The Dow snapped a four-day rally of record high closes, declining 0.6%. The blue-chip index also closed 157 points away from its key technical level of 17,000. The U.S. airlines industry was hit hard after Deutsche Lufthansa AG lowered its earnings forecast for 2014 and 2015. Investors were also concerned over U.S. House Majority Leader Eric Canton's defeat in the primary election.

The Dow lost nearly 0.7% following a spike in crude oil prices and discouraging economic data. Investors were worried about the extent to which the Iraq crisis could affect the nation's oil supply. Moreover, less-than-forecasted retail sales growth and an unexpected rise in unemployment benefits also dented investor sentiment. The blue-chip index declined for two-consecutive sessions, a losing streak last seen almost a month ago.

Components Moving the Index

Caterpillar Inc. ( CAT ) has approved a 17% increase in its quarterly dividend, the highest percentage increase since 2010. The hike also reflects its balance sheet strength.

Caterpillar will now pay 70 cents per share to its shareholders every quarter, 10 cents more than the prior dividend of 60 cents per share. The increased dividend will be paid on Aug 20, 2014, to shareholders of record as of Jul 21, 2014. The current dividend hike comes exactly after a year.

The last dividend hike of 15% from 52 cents to 60 cents was announced in Jun 2013. At current levels, Caterpillar's 5 year average dividend yield of 2.25%, 5 Year dividend growth rate of 6.70% and payout ratio of 38.97% are above the industry average of 1.98%, -4.44% and 14.27% respectively.

The Boeing Co .'s ( BA ) stock price dropped over 2% on Wednesday, the most in the last two months. The stock emerged as the biggest loser in the blue chip index, following the defeat of U.S. House Majority Leader Eric Cantor of Virginia in a primary election.

The defeat came as a blow to the aerospace giant as the market views the development as a threat to congressional reauthorization of the Export-Import Bank of the U.S. (Ex-Im Bank), the official export credit agency of the country.

The Ex-Im agency assists in financing the export of U.S. goods to international markets and facilitates foreign airlines that do not have the necessary resources to purchase expensive aircraft. Boeing had expected this Ex-Im service to fetch $10 billion in sales this year. The Republican to whom Cantor lost had earlier indicated that the U.S. should exit the Ex-Im facility in a drive to cut government spending. Now, Boeing investors are worried the company will lose out on potential sales.

Exxon Mobil Corp. ( XOM ) may acquire independent oil and natural gas exploration and production (E&P) company Anadarko Petroleum Corp. (APC), according to market sources. Following the rumour, trading volume of Anadarko Petroleum jumped 211.6% to 11,688,364 on Jun 11 compared to its last 10 days average volume.

Shares of Anadarko Petroleum hit its 52-week high of $109.00 on Jun 11 following the news. Finally, the shares closed at $108.32, up roughly 4.2% from the previous day's closing.

Microsoft Corporation ( MSFT ) recently unveiled Toshiba's pocket-friendly Encore tablet with a 7-inch display and running on Windows 8.1 at Computex 2014. The device has been built by Toshiba, in association with Microsoft, Intel (INTC), Goodix, and AMI, and is the smallest size Windows slate to date.

The device is expected to be available for sale in the coming months, first in the U.S. followed by a worldwide release. However, details regarding its price were not disclosed.

Performance of the Top 10 Dow Companies

The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has lost 0.82%.

Ticker Last 5 Day's Performance 6 Month Performance
V -0.24% +2.13%
IBM -2.55% +4.87%
GS +1.40% -1.44%
MMM -0.63% +13.16%
BA -3.93% -1.23%
CVX +1.76% +5.18%
UTX -1.44% +8.85%
XOM +0.90% +6.66%
MCD -2.74% +5.63%
CAT -0.42% +23.94%

Next Week's Outlook

Disappointing data from the World Bank has ended a period of considerable gains for the Dow this week. The effects of this announcement may not spill over into next week. However, the conflict in Iraq and its impact on oil prices could hurt benchmarks in the days ahead. But positive economic data could go a long way in helping the blue chip index notch up gains.

Incidentally, next week has several important economic reports lined up. This includes data on industrial production, housing, inflation and leading indicators. Going forward, positive indications from these releases can easily change the fortunes of the Dow.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

BOEING CO (BA): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

CATERPILLAR INC (CAT): Free Stock Analysis Report

EXXON MOBIL CRP (XOM): Free Stock Analysis Report

MERCK & CO INC (MRK): Free Stock Analysis Report

IDENIX PHARMA (IDIX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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