How the 2016 Election Affected Dividend Growth Stocks

Photo: Price

In the wake of last week’s election, markets reacted sharply with the Dow Jones index swinging more than 1,000 points between the pre-market futures and the close on the day after the election. It’s been about a week since the election and we are getting our first indications of which sectors the market thinks will benefit and which will be hurt by a Trump presidency.

While the market as a whole was up strongly in the three days following the election, and there were some particular sectors that reacted very well:

The Banking and Financial sectors were the big beneficiaries, with financial ETF XLF up 11% for the week and regional banking ETF KRE up 15%. Dividend growth asset managers T. Rowe Price (TROW) and Franklin Resources (BEN) are both part of XLF’s holdings and each was up 10% on the week. KRE includes such regional banking companies like Bank of the Ozarks (OZRK), People’s United Financial (PBCT), Cullen/Frost Bankers (CFR), Commerce Bancshares (CBSH) and Prosperity Bancshares (PB), all of which were up at least 12% and as much as (in the case of OZRK) 23% for the week.

Aerospace and Defense ETF ITA was up 10% on the week, with dividend growth companies United Technologies (UTX), Lockheed Martin (LMT), General Dynamics (GD), and Northrop Grumman (NOC) each up between 7.4% and 12.5%.

Retail (XRT) and Industrials (XLI) were each up 8.1% last week. The big winners in the Retail space were Target (TGT), up 7.2% and The TJX Companies (TJX), up 5.2%. In the Industrials space, Dividend Aristocrat Emerson (EMR) was up 13.4%, while future Dividend Aristocrats Caterpillar (CAT) and General Dynamics (GD) were up 13% and 12.5%, respectively. Railroad CSX (CSX) was also up 11.8%.

Most of these stocks are already extended and not at a good buy point, at least not without a decent pullback. With the strong move last week, it wouldn’t be surprising to see the stocks’ prices pullback or at least stall, as the overbought conditions are worked off through time.

But not every sector did well. Consumer Staples and Utilities were down quite a bit on the likelihood of an interest rate increase in December. Consumer staples ETF XLP fell 2.1% last week, with CVS Stores (CVS) and Dividend Aristocrat Colgate-Palmolive (CL) leading the pack, down 8.8% and 3.1% respectively.

Finally, XLU was down 4.0% during election week, with most dividend growth components of the utilities ETF down as well. Next Era Energy (NEE) led the pack down, falling 7.8%. Southern Company (SO) and Consolidated Edison (ED) were both down at least 4.4%.

The drop in these stocks has pushed yields up – SO and ED yield 4.7% and 3.8%, respectively, while NEE yields 3.1%. However, all three are showing similar patterns of lower lows and lower highs, indicating that they all continue to be in downtrends and that it isn’t time to pick them up just yet.


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