DIA: The Ultimate ETF

| About: SPDR Dow (DIA)

Summary

A rock solid ETF holding 30 global mega-companies, all in one fund.

A very low gross expense ratio; currently 0.17%.

A dependable regular distribution.

Charles Dow and Edward Jones would be completely astounded to see how far their start-up publication has grown over the many, many decades. In the early 1880s, the two newspaper reporters discovered an unoccupied 'media niche' for which there was a growing market: a daily summary stock market report with data and financial news. In 1883 they published the Customer's Afternoon Letter, an easy, accurate, concise compilation of the financial news of the day.

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The Customer's Afternoon Letter was the first step of what would eventually become the Wall Street Journal, part of the media empire of Dow Jones & Company [a holding of News Corp (NASDAQ:NWSA) today]. The Dow Jones Industrial Average has always been the market indicator for the average citizen. The Dow Jones Industrial Average is ubiquitous, distributed to every media platform world-wide. Times have changed, though. At one time the 'Dow' and 'S&P500' were the undisputed kings of market indices. Today, specialized indices have grown into an industry itself. For just one example, Morgan Stanley Capital International (MSCI) specializes in market analytics, offering over 2000 widely used and specialized indices. From a professional point of view, the Dow Jones Industrial Average is now rather quaint compared to some of the more comprehensive indices, averaging from many hundreds to many thousands of publicly traded companies, globally.

The size, scale and number of permutations of those larger indices are simply mind boggling for the average investor. On the other hand the average retail investor should be able to recite the Dow 30 Industrials after seeing it a few times; but it'll take a lot more effort to recall each S&P 500 member, let alone the Russell 2000! A moment's thought might cause a 'retail investor' to reflect on their own personal portfolio. Have you ever taken the trouble to take a line-by-line look at each holding in your ETFs? Is having just one large index more than enough? If you have more than one ETF, are they simply replicating a large portion of each other? These are difficult questions to answer especially for people with very busy lives. After all, who would want to spend the evening digging deep into a couple of funds containing hundreds upon hundreds of stocks after a long day at work? This is the prime reason self-motivated investors should look for funds with as few holdings as possible. A portfolio of carefully selected smaller funds builds an efficient and well-diversified portfolio. By being selective, an investor can then pick and choose the best ETFs in Asia, Europe or the Americas. Most importantly, small funds are easy to compare item by item and thus avoid 'overlapping' holdings between funds. In a nutshell, small is better.

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This brings the discussion full circle back to the Dow Jones Industrial Average which is comprised of the 30 most influential large cap companies in the U.S. and probably in all financial history! Best of all there's perfect way to invest in the Dow without having to do-it-yourself. This may be accomplished through State Street Global Advisors' (NYSE:STT) Dow Jones Industrial Average ETF (NYSEARCA:DIA). For the new investors, who can steal away a few minutes a day to peruse the Dow components, this is the ideal place to start. First off, the fund tracks the DJIA; i.e., the fund invests in each component member in proportions necessary to emulate the actual DJIA. Second, the fund is 'forgiving'. Because of the strength and diversification of its composition, it recovers well from those occasional market crashes and the data is there to prove it. It other words, you won't lose sleep worrying about individual component companies going bust; and in the rare event that should occur, there's always the 'next in line' company which would relish the opportunity to replace a chief competitor's name in the Dow. Lastly, the fund itself has been long established, having first listed in January of 1998 and has had very respectable returns.

Returns

1 Month

Quarter to Date

Year to Date

1 Year

3 Years

5 Years

10 Years

Since Inception 1/14/1998

0.69%

9.32%

1.64%

1.78%

13.34%

12.61%

7.66%

6.55%

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The fund's price to book value multiple is 2.98 times, price to cash flow multiple is 9.62 times and price earnings multiple is 14.18 times. The fund's total net assets are $12.818 billion. The weighted average market capitalization of the fund's holdings is a whopping $154.6 billion. The fund's trailing twelve month yield is 2.36% which is about 20 basis points shy of the actual DJIA yield (2.89%). The management fees are an exceptionally low 0.17% and the shares are currently trading at a discount to NAV; -0.01%. Needless to say, the fund is marginable.

Data from State Street

Dow 30 Index Sector Allocation

Consumer Discretionary

Industrials

Information Technology

Financials

Health Care

Consumer Staples

Energy

Materials

Telecom

18.85%

18.50%

16.83%

16.30%

11.76%

7.00%

6.52%

2.47%

1.78%

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Data from State Street

One of the key advantages of the fund is that the 'brand names' are certainly recognizable. Each and every one is a global powerhouse corporation and each contributes to the fund's overall distribution. The averages for each sector are included in the last line of the chart so that each sector may be viewed as a single asset starting with Consumer Discretionary.

Consumer Discretionary 18.832%

Fund Weight

Market Capitalization in USD Billions

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

Home Depot (NYSE:HD)

5.077963%

$166.485

1.80%

15.87%

41.73%

24.57

24.94%

19.04

73.68%

Nike Inc. (NYSE:NKE)

5.008979%

$110.614

0.99%

15.30%

27.56%

32.77

13.90%

26.61

83.76%

McDonald's Corp (NYSE:MCD)

4.546744%

$108.066

3.02%

9.86%

73.23%

25.44

3.26%

18.03

70.29%

Walt Disney Company (NYSE:DIS)

4.198314%

$176.212

1.33%

35.25%

36.54%

21.75

19.24%

15.72

62.41%

Averages

5.08%

$140.34

1.79%

19.07%

44.77%

26.13

15.34

19.85

72.54%

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Data from Reuters, Yahoo!, Gurufocus

Just to point out a few notable stats, the average market cap at over $140 billion dollars would be the envy of almost any company on the planet. One key statistic is the payout ratio; an indication of how much the company allocates for dividends from adjusted cash flow; the lower the better. Also note that institutions hold 72% of each of these companies, on the average.

Industrials 18.48279%

Fund Weight

Market Capitalization

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

3M (NYSE:MMM)

5.726107%

$90.805

2.78%

10.89%

51.43%

19.06

10.63%

14.26

68.60%

Boeing (NYSE:BA)

5.440035%

$94.401

3.09%

13.03%

44.65%

17.70

31.59%

12.60

76.38%

United Technology (NYSE:UTX)

3.598888%

$83.034

2.73%

8.91%

37.61%

14.60

10.60%

10.38

83.31%

Caterpillar Inc (NYSE:CAT)

2.537618%

$37.984

4.72%

9.95%

58.79%

13.53

32.67%

6.31

69.45%

General Electric (NYSE:GE)

1.180142%

$307.320

3.03%

7.85%

291.39%

98.67

8.93%

24.32

57.52%

Averages

3.70%

$122.71

3.27%

10.13%

96.77%

32.712

18.88%

13.574

71.05%

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Data from Reuters, Yahoo!, Gurufocus

Industrials are considered sensitive to economic cycles; that is to say, when the economy slows some companies do poorly and conversely, when the economy does well so too the sensitive companies. This is the case here. Caterpillar has already cautioned on the slowing demand for heavy mining equipment. Similarly, Boeing forecast a reduction in 2016 orders, however previously ordered commercial jetliners are backlogged for several years. In either event, the lower price for these high quality companies presents opportunity, not risk!

Information Technology 16.818002%

Fund Weight

Market Capitalization

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

IBM (NYSE:IBM)

5.257635%

$131.449

3.84%

14.60%

32.77%

9.30

9.28%

7.17

60.31%

Apple Inc. (NASDAQ:AAPL)

4.132447%

$598.400

1.94%

73.50%

21.41%

11.67

33.61%

9.26

59.39%

Visa Inc (NYSE:V)

2.974520%

$187.482

0.73%

30.88%

18.64%

29.96

30.65%

27.48

93.87%

Microsoft Corp (NASDAQ:MSFT)

2.109680%

$437.977

2.63%

18.98%

84.46%

36.84

-6.81%

23.98

73.31%

Intel Corp (NASDAQ:INTC)

1.319865%

$161.578

2.80%

9.95%

40.46%

14.63

24.50%

8.05

67.36%

Cisco (NASDAQ:CSCO)

1.023855%

$135.201

3.15%

10.80%

43.63%

14.27

5.61%

11.33

77.29%

Averages

2.80%

$275.35

2.52%

26.45%

40.23%

19.445

16.14%

14.545

71.92%

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Data from Reuters, Yahoo!, Gurufocus

Not much more needs to be said when the total of Microsoft's and Apple's market capitalizations are combined: $1.035 Trillion dollars! One other curious note and a certain indication of the future of money and credit: Visa is not considered a financial company, rather it provides 'information technology' through its global network of electronic payment systems and products. For example, credit is extended to customers as a financial service but the payment conduit from the point of purchase to the credit servicing institution is provided by Visa.

Financials 16.286978%

Fund Weight

Market Capitalization

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

Goldman Sachs Group (NYSE:GS)

6.839603%

$75.816

1.46%

16.47%

16.34%

11.69

-5.06%

9.38

78.15%

Travelers Companies (NYSE:TRV)

4.292242%

$33.750

2.20%

11.82%

20.73%

9.94

11.07%

7.60

83.32%

American Express (NYSE:AXP)

2.645187%

$67.322

1.70%

7.00%

19.67%

12.37

29.35%

10.05

84.19%

JPMorgan Chase (NYSE:JPM)

2.509946%

$241.261

2.69%

51.19%

28.94%

11.17

18.74%

8.72

76.18%

Averages

4.07%

$104.54

2.01%

21.62%

21.42%

11.29

13.53%

8.94

80.46%

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Data from Reuters, Yahoo!, Gurufocus

On the other hand, American Express actually provides the financial services as well as having a payment network. Although they've changed with the times, company's like American Express and JPMorgan have roots dating back well over a century.

Health Care 11.746861%

Fund Weight

Market Capitalization

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

UnitedHealth Group Inc. (NYSE:UNH)

4.514006%

$111.904

1.70%

115.83%

27.32%

18.81

11.94%

14.50

90.41%

Johnson & Johnson (NYSE:JNJ)

3.973432%

$281.006

2.95%

7.42%

54.66%

19.47

5.32%

15.26

67.43%

Merck & Co (NYSE:MRK)

2.012634%

$144.901

3.55%

2.98%

47.74%

13.82

-6.36%

8.43

75.52%

Pfizer Inc (NYSE:PFE)

1.246789%

$200.376

3.70%

5.39%

81.45%

24.29

3.18%

14.88

74.04%

Averages

2.94%

$184.55

2.98%

32.91%

52.79%

19.098

3.52%

13.268

76.85

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Data from Reuters, Yahoo!, Gurufocus

Similarly companies in Health Care have been long established in the U.S. In fact, Merck & Company was initially a subsidiary of a German company, Merck, established in 1668! However, the important point in the Health Care sector is this particular collection of globally established Health Care companies, all considered 'non-cyclical', with an average yield of nearly 3.00%.

Consumer Staples 6.995110%

Fund Weight

Market Capitalization

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

Proctor & Gamble Co. (NYSE:PG)

3.045063%

$214.798

3.36%

7.55%

61.50%

25.96

-2.46

18.40

60.76%

Wal-Mart Stores (NYSE:WMT)

2.293639%

$190.672

3.29%

11.99%

41.62%

12.77

5.87%

7.68

30.67%

Coca-Cola Co. (NYSE:KO)

1.656408%

$186.049

3.09%

8.27%

82.03%

27.42

1.72%

21.04

64.24%

Averages

2.33%

$197.17

3.25%

9.27%

61.72%

22.05

1.71%

15.71

51.89%

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Data from Reuters, Yahoo!, Gurufocus

Only three world class companies comprise consumer staples, each dominating their market. There's probably not a store shelf on the planet, in the literal sense, without at least one Proctor & Gamble product. Walmart established the 'super-store' model in the U.S. and literally changed retail store industry. Lastly, does Coca-Cola need an introduction? The sector's average dividend yield is 3.25%

Energy 6.512219%

Fund Weight

Market Capitalization

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

Chevron Corp (NYSE:CVX)

3.500284%

$167.953

4.80%

9.62%

69.34%

19.39

14.11%

5.74

62.63%

Exxon Mobil Corp (NYSE:XOM)

3.011935%

$321.628

3.78%

10.22%

59.98%

16.32

13.81%

8.41

50.71%

Averages

3.26%

$244.79

4.29%

9.92%

64.66%

17.855

13.96%

7.075

56.67%

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Data from Reuters, Yahoo!, Gurufocus

Two mega energy companies comprise the sector: Exxon and Chevron. Between them the average dividend yield is 4.29%. The current global oil price decline is the worst in decades. It's important to note that both of these companies well understand the importance their respective dividends are to investors. Both have the financial resources and assets to weather the storm well. Hence, although these are troubled times for the energy sector these well managed and well capitalized companies are well positioned. Exxon still managed to exceed its 2015 Q4 earnings estimates. The energy sector will be the most difficult, globally, for several quarters to come. However, for the investor with a long term horizon, this only adds to the future potential for capital appreciation of the entire fund.

Materials 2.470972%

Fund Weight

Market Capitalization

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

E.I. du Pont de Nemours (NYSE:DD)

2.470972%

$55.932

2.38%

2.33%

53.80%

20.74

15.25%

13.93%

69.98%

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Data from Reuters, Yahoo!, Gurufocus

Second to the last of this famous lineup is E.I. du Pont de Nemours , established over 200 years ago and innovator of such materials as Teflon, Kevlar, Neoprene Rubber, Nylon, Mylar, Lycra and hundreds of others. Du Pont has contributed to every major industry as well as developing new materials during the Second World War and those needed for the space age. The name du Pont is as durable as the materials they produce.

Telecom Services 1.775670%

Fund Weight

Market Capitalization

Dividend

Yield

5 Year Dividend Growth Rate

Payout Ratio

P/E

5 Year EPS Growth Rate

Price to Cash flow multiple

Percent Owned by Institutions

Verizon Communications (NYSE:VZ)

1.775670%

$186.761

4.92%

2.93%

37.92%

18.26

7.01%

6.98

64.81%

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Data from Reuters, Yahoo!, Gurufocus

A newcomer and offspring of the old monolithic AT&T is Verizon . Verizon was added to the Dow in 2003 and is the largest telecom service provider today. It contributes a 4.92% dividend to the fund.

The whole point of the matter is this: markets rise and fall. True, an investor may do just as well over a very long period of time with a large index fund like the S&P 500. However, there's a critical difference: an individual investor can get a handle on what they're invested in with DIA, whereas it would be quite a chore to try to keep up with hundreds or thousands of holdings of other index funds. Large index funds are more of a 'shotgun' approach to investing and greatly increases the possibility that two or more large index funds will actually work against each other.

Anchoring a portfolio with an ETF with just 30 holdings gives an investor the opportunity to then diversify and seek out other types of high quality ETFs, preferably with as few holdings as possible. This solves two problems for the small investor: it creates an efficient portfolio as well as a manageable portfolio. You actually know what you're investing in.

Further, these companies will fare well in both good and bad times, pay consistent dividends and always attract the interest of institutional investors adding to market stability. Hence, it's the perfect fund to dollar cost average with and to reinvest distributions. Over time, the less relevant companies will be removed and more relevant companies added again an advantage to the investor. Importantly, the Index is structured so that this is accomplished without affecting the average itself!

A few last words: The share price is approximately 1/100 of the Dow Industrial Average. So if the Dow is 15,974.00 the share price is close to $159.74. This might sound like a frighteningly high price, but the fact is that with a P/E of less than 15, it's a pretty good buy. If you're new to investing, don't fall into the 'round lot' trap of being comfortable with a 'round number' of shares. That's like sacrificing quality for quantity! Further, buying an odd number of shares, even a fractional amount, incurs no extra costs as it did decades ago. What really counts is the cash value you're investing for the future.

Oh! There's one little perk when owning DIA: because the Dow Jones average is so widely broadcast, every time you happen to hear or see it, you'll know exactly how well you're doing!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: CFDs, spreadbetting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.