<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (June 8, 1998) -- Last week I wrote about General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> and the new strike they're trying to end. But within that column I mentioned that one research group working with the Dow high yielders (the American Institute for Economic Research) skips GM when it appears in the rankings since the company follows more of a European model regarding dividends than the traditional dividend model favored by the overall Dow culture.

General Motors often adjusts its dividends according to how well business is at the time, thus cutting it more readily in tough times than the typical Dow stock would because of the negative signals a dividend cut sends. Because of this, GM doesn't maintain the steady dividend crucial to the success of the high-yield plan.

Several readers asked me to discuss GM's performance further, so I went to our Dow Spreadsheet (available in FoolMart) and ticked off all the years since 1971 that General Motors was among the High-Yield 10. It turns out that it has appeared in 16 of the last 27 annual lists. But of those 16 years, only four times did General Motors' performance surpass that of the High-Yield 10.

In 1975, GM gained 90.67% versus the HY10's gain of 63.09%. But this followed two years where GM was in the HY10 and did significantly worse than the HY10. So for the three years from 1973 through 1975, General Motors lost 8.7% but the HY10 gained 87.5% -- a huge loss for GM versus the other high yielders.

In 1984, General Motors again beat the HY10, gaining 13.95% compared to 6.36%. But in 1985, it was again in the group and lost 1.0% versus the HY10's gain of 30.5%. And in 1986, it only gained 1.41% (again as part of the HY10) while the overall group gained 26.2%. For the three years, GM gained 14.4% while the HY10 gained 75.2%.

GM had a nice gain over the HY10 in 1988, picking up 37.94% versus 17.96%, but the two positions were reversed in the following year, when GM gained 15.5% and the HY10 picked up 29.68%.

In fact, GM was among the HY10 every year from 1984 through 1992 (the fourth year when GM had a slight edge over the HY10). The total return for GM over those nine years was 63.9%, or an annualized gain of only 5.6%.

Over the same nine years, despite GM's pitiful performance, the High Yield 10 returned 302.3%, or an annualized gain of 16.7%.

I think it's fair to say that General Motors has been no friend of the High-Yield Investor! Use this information for what it's worth and check out the details yourself in the Dow Spreadsheet. Fool on!

Current Dow Order | 1998 Dow Returns

[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]

TODAY'S NUMBERS
Stock  Change   Last 
 -------------------- 
 UK   -   1/8   49.88 
 IP   +   5/16  47.75 
 MO   +   3/4   39.50 
 EK   +   3/4   70.31 
  
 
 
                    Day   Month    Year 
         FOOL-4   +0.77%   1.61%   8.23% 
         DJIA     +0.35%   1.91%  14.69% 
         S&P 500  +0.17%   2.28%  14.97% 
         NASDAQ   +0.27%   0.50%  13.84% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  291 Union Carb    42.94     49.88    16.16% 
  12/31/97  206 Eastman Ko    60.56     70.31    16.10% 
  12/31/97  289 Int'l Pape    43.13     47.75    10.72% 
  12/31/97  276 Philip Mor    45.25     39.50   -12.71% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  291 Union Carb 12494.81  14513.63  $2018.81 
  12/31/97  206 Eastman Ko 12475.88  14484.38  $2008.50 
  12/31/97  289 Int'l Pape 12463.13  13799.75  $1336.63 
  12/31/97  276 Philip Mor 12489.00  10902.00 -$1587.00 
  
  
                              CASH    $415.96 
                             TOTAL  $54115.71