No. of Recommendations: 18
Hopefully, nobody will be bent out of shape by this ramble.

Yesterday General Electric was booted out of the Dow after over one hundred consecutive years. GE was an original component of the Dow at its inception in 1896. It is replaced by Walgreen Boots.

So what; how is it relevant in this venue? The most obvious observation is “Every dog has its day.” Everything must end… eventually. This isn’t to say that GE is history. Some previous Dow members survived as stand alone companies, and were profitable, for decades after their expulsion.

Not only was GE the longest serving Dow component, but it was also a company that increased its dividend year after year for extended periods. It might have been a Dividend King at some point and certainly a Dividend Champion.

It’s easy to be lulled into a sense of security when choosing a stock to invest in if that company has a long and storied past. For dividend growth investors the fact that a company has grown its dividend for 25 years and counting can feel like reassurance that, on this basis alone, all is well and will continue to be into the distant future.

I wonder if Warren Buffett’s massive, and misplaced, bet on IBM wasn’t somewhat influenced—albeit unconsciously—by IBM’s past triumphs and agile ability to adapt. It’s a company that flourished and rewarded its shareholders for extended periods over Buffett’s adult life.

There’s a personal element to my musings. I bought a modest amount of GE stock, against my better judgement, shortly before the Great Recession hit and before GE found itself in an existential cash-flow crunch (Buffett stepped in and lent them money at a very high interest rate).

General Electric had accrued an enormous amount of debt over the years, but analysts far and wide maintained that GE knew exactly what they were doing and the risk was minimal; not so, as it turned out. The amount of debt bothered me, but against my better judgement and influenced by history and general consensus I bought some stock anyway. I still have it and it’s worth about half of what I paid for it. In spite of all the evidence somewhere in my animal brain I’ve believed that this too will pass and eventually my poor choice will be vindicated. This is the power of storied companies that were the building blocks of an America past.

Replacing GE with Walgreen is likely a good pick. Walgreen (IMO) is probably undervalued and under appreciated right now. The folks at DOW are also—reading between the line—rubbishing the wobbles about anything to do with healthcare is on a slippery slope. There’s been some pushback and complaining that they should have picked a more 21st. century tech stock, but on a risk/reward basis I think they did well, and Walgreen is a stock worth consideration by individual investors.

What all this says to me is: don’t mindlessly put a tick in the plus column simply because a company has paid rising dividends and has been around longer than you have. Do your own due diligence; the prevailing consensus isn’t always right.

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When Life Gives You Lemons
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