Investing has its ups and downs. And in 2015, it’s tempting to start fretting about stretched valuations and the weight of economic slowdowns in both China and Europe.
But in the long run, it’s undeniable that the markets do steadily move higher — in fact, significantly higher.
In 2004, Warren Buffett famously said that investors should expect 6% to 7% returns annually — and for most multiyear time frames after World War II, that adds up. Consider that from the period of 1950 to 2009, the S&P 500 offered a total return of about 7% adjusted for both dividends and inflation. And data from NYU’s Stern School of Business shows that a simple average of each year’s performance for the S&P 500 from 1965 to 2014 adds up to 7.1%.
While there may be day-to-day gyrations, investors in stocks for the very long haul always come out ahead.
So if you’re in it for the very long term … what would have happened if you invested in the original 12 components of the Dow Jones Industrial Average, which was formulated back in 1896?
Surprisingly, the vast majority of these companies are still around in some form — some are even running under the same (or a slightly different) name! And a few of them are actually still decent investments in their current form.
While performance is hard to track over a century of mergers and acquisitions, a look at where the original Dow Jones stocks have been (thanks to the Museum of American Finance for some of the detective work) and where they’re going can say a lot about a long-term investing strategy.
So here’s a look at the original Dow components, and where they are now:
Original Dow Component #1: American Cotton Oil
Current Status: Part of Unilever N.V. (ADR) (NYSE:UN)
In the late 19th century, cotton mill owners across the nation began to consolidate into a trust and thus protect the business from competition. According to one resource, by 1886 the group that had become known as the American Cotton Oil Trust controlled about 88% of seed-crushing capacity in the U.S.
Of course, these kind of syndicates where a group of eight, 10 or even 20 companies operated together as a single company were dissolved thanks to antitrust legislation around 1890, and had to reform as the American Cotton Oil Company in the years leading up to the first print of the now-famous Dow Jones industrial average.
All that history is noteworthy mostly because American Cotton Oil only lasted until July 1901 before it was booted from the index it helped create.
In fact, by 1917 the company ranked only 126th in size among all U.S. corporations, according to Cinderella of the New South: A History of the Cottonseed Industry, 1855-1955.
Life only got worse for American Cotton Oil across two world wars and the rise of an industrial economy, and eventually what was left of the company would up as a part of Unilever.
Not a bad landing spot, all told, given the $130 billion valuation of Lipton tea and Dove soap parent Unilever, which holds one of the planet’s greatest collections of consumer brands.
Original Dow Component #2: The American Sugar Refining Company
Current Status: Now known as ASR Group (privately held)
As you’ll see, about a hundred years ago, it was very important to make sure some kind of geography was in the name of your company. (You know, just so we don’t mistakenly think your 19th century company is headquartered in Beijing or Sao Paulo.)
Anyway, The American Sugar Refining Company is the next entry on our list. And unlike American Cotton Oil, this sugar giant managed to persist for many decades, staying listed as a Dow Jones Industrial Average component until 1930.
In recent decades, it gets a bit more complicated.
For starters, American Sugar changed its name to Amstar in the 1970s after branching out into new areas including high-fructose corn syrup. Then in 1983, during the great LBO craze, KKR & Co. L.P. (NYSE:KKR) bought Amstar, then sold it in 1986 to Merrill Lynch.
But ultimately, sugar isn’t exactly an industry that lends itself to a whole lot of competitors, and eventually what once was American Sugar wound up very close to where it was — under the name ASR Group, the corporate branding that stands for (you guessed it) American Sugar Refining.
The only difference, aside from a century’s worth of technological changes: ASR is a partnership based in Florida, and not a publicly traded stock anymore.
Still, ASR is very much a sugar company at its sweet core.
Original Dow Component #3: American Tobacco Company
Current Status: Split; tobacco business now part British American Tobacco PLC (ADR) (NYSEMKT:BTI)
American Tobacco has an interesting history, getting dropped and added to the DJIA across a few different periods.
First, it left in short order after just three years, in 1899. Then American Tobacco returned for a second run from 1924 to 1930. Then it had a third appearance from 1932 all the way until 1985.
Not a bad run, considering how some of the other players have fared!
It gets even more interesting, too, considering that in the 1960s the company started diversifying beyond tobacco in an effort to insulate itself from health concerns. It acquired everything from insurers companies to bourbon distilleries to golf companies — changing its name to American Brands in the process, to reflect this new portfolio.
In fact, in 1994 the company actually got ride of its tobacco business altogether, selling to British American Tobacco for $1 billion. The remaining companies were rebranded as Fortune Brands — and then most of the individual arms were spun off independently, including spirits company Beam Inc., which was acquired by Suntory Holdings Ltd. in January 2014 for $16 billion.
The money from the original American Tobacco spread into many different places, but BTI is probably where the true spirit of American Tobacco Company lives on.
And while there admittedly isn’t much growth in the tobacco biz, a stable 4%-plus dividend and a $100 billion market cap provides plenty of stability for modern-day investors.
Original Dow Component #4: Chicago Gas
Current Status: Part of Integrys Energy Group, Inc. (NYSE:TEG)
Utility company Chicago Gas lasted only about two years before regional competitor People’s Gas Light and Coke Company rolled it up in 1898.
People’s lasted through 1915 until it, too, was dropped.
But while a utility company isn’t quite as interesting as a benchmark for stock market success as other players, the nature of such a business ensures that it will be around for the long haul — and indeed Chicago Gas’s roots live on after a 2007 merger between People’s Energy and a Wisconsin utility that formed the Midwest utility conglomerate Integrys Energy Group.
And fun fact: The recently created Integrys is actually headquartered in Chicago, right where this original Dow component was situated over a century ago.
Modern-day utility stock investors probably like what they see in Integrys, with a 24% return in the last 12 months and a juicy 3.8% dividend to boot. And since utility stocks are meant to be slow-and-steady investments for the long-term, investors in 2015 can have confidence this company will be around in another few decades — even if it’s unlikely to ever rejoin the Dow.
Original Dow Component #5: Distilling & Cattle Feeding
Current Status: Subsidiary of Heidelberg Cement (OTCMKTS:HLBZF)
How do you get from a booze and cattle feed company to a multibillion-dollar German building conglomerate?
Let’s explore, shall we?
The rather plainly named Distilling & Cattle Feeding Co. changed its name to the mildly more interesting American Spirits Manufacturing Co. just months after being listed in the first Dow Jones Industrial Average. After that, its presence in the index only lasted until 1899.
American Spirits then became National Distillers, and the company weathered Prohibition as best it could by partnering with other companies including U.S. Industrial Chemicals — previously U.S. Industrial Alcohol, but now purporting to be a maker of molasses, among other things.
Even when Prohibition broke, the company kept focused on growing the newer arms of the business and ultimately acquired U.S. Industrial Chemicals in 1950. And in 1957, when the company had become so focused on industrial chemicals it was unavoidable, the name was changed to National Distillers and Chemical Corporation to reflect this dual nature.
In the 1980s, the company purchased petrochemical company ARCO and became the largest polyethylene producer in America; it also acquired fuels marketer Suburban Propane. And after so many different moves from its original roots as a spirits company, the name was changed to Quantum Chemical.
And ironically, the growth and iterations of started to make a liquor business seem incongruous – and eventually, the remaining alcohol businesses were sold off for about $684 million to what was then Grand Metropolitan — which merged with Guinness to eventually form Diageo plc (ADR) (NYSE:DEO).
But we can’t stop there.
Quantum was then acquired by Hanson PLC in 1993 for $3.2 billion. And we have to keep following the money all the way from the Distilling & Cattle Feeding Co. to Germany!
Eventually Millennium Inorganic Chemicals — a subsidiary of Hanson — was spun off by Hanson in 1996, containing some of the roots of the petrochemicals business originally inspired by U.S. Industrial Chemicals. But meanwhile, the root company Hanson Plc persisted, and exists now as a subsidiary of a German public company HeidelbergCement after a 2007 acquisition.
So there you have it. A bit of a winding road … but it’s not every day you can draw a line from a 19th century American liquor company to a modern Dax 30 component known for ready-mix concrete, can you?
Original Dow Component #6: General Electric
Current Status: Still General Electric Company (NYSE:GE)
After the Distilling & Cattle Feeding Co., this one is easy — GE still exists!
It’s worth noting, of course, that GE had a quick removal from the Dow in 1898 and didn’t return until 1907. Still, it’s the oldest uninterrupted component of the Dow Jones Industrial Average — even if it took a brief break.
GE hasn’t gone unchanged over the last century or so, of course. After Jack Welch branched out into a host of businesses — including the ill-fated GE Capital arm that caused so much pain for shareholders during the financial crisis — General Electric has been backpedaling under Jeff Immelt by selling off assets including its $500 billion GE Capital Business and a $26.5 billion real estate portfolio.
So is GE a buy here for another hundred years or so? I wouldn’t count it out. Thanks to growth in its healthcare technology arm via medical imaging devices like MRI machines and thanks to a focus on alternative energy sources like wind and nuclear, General Electric is certainly making sure it’s a 21st century company.
And with a 3.3% dividend and a massive $278 billion market cap? Well, it’s safe to say that even if General Electric does fade from the Dow over time, it certainly won’t go away altogether.
Original Dow Component #7: Laclede Gas
Current Status: Known as Laclede Group Inc (NYSE:LG)
The churn of the Dow Jones in its early years claimed utility Laclede Gas as another victim after just a few years on the fledgling index. But while the name is hardly recognizable to folks outside of Missouri, it does indeed persist as a publicly traded stock — even with roughly the same name: Laclede Group.
In fact, in 2009 the company rang the bell on the New York Stock Exchange to celebrate 120 years as a publicly traded stock — a simply amazing track record, even for a slow-and-steady utility company!
Over the last five years, LG has moved roughly the same as its peers, up about 62% vs. 56% for the sector-focused Utilities Select Sector SPDR (NYSEARCA:XLU). And Laclede does offer a decent 3.5% yield to boot.
But as with Chicago Gas, investors should remember that these kinds of regional utility stocks are sleepy by nature — and while they certainly will be around for many years, that doesn’t guarantee they will set off a lot of fireworks.
That can either be a draw or a drawback, depending on your investing goals.
Original Dow Component #8: National Lead
Current Status: Known as NL Industries Inc. (NYSE:NL)
You might think that National Lead is one more of those oddly focused stocks from a bygone era that never would have survived long despite its presence in an initial list of Dow components.
However, National Lead had a pretty good run in the Dow Jones Industrial Average, keeping its spot on the list until 1916.
Even after that, National Lead soldered on … I mean, soldiered on.
Aside from changing its name to NL Industries in 1971 — clever, eh? — the company has been in largely continuous operation since it was incorporated from several lead manufacturers way back in 1891.
There were indeed some bumps along the road, and the problems with lead paint have led NL to move into other areas beyond lead, including not just chemical and pigment formulations but also the sale of security and marine products through its CompX subsidiary.
Unfortunately, there isn’t much growth in any of those areas, and the impact of the recession hit this now small-cap company pretty hard. It has yet to recover, with shares at less than half their 2011 highs while the market is up about 60%, and the company eliminated its dividend in 2013.
In other words, NL Industries Inc. may still carry the legacy of National Lead, but it isn’t exactly the gold standard of American business anymore.
Original Dow Component #9: North American Company
Utility conglomerate North American Company has the honor — disgrace? — of being the shortest-lived member of the original Dow Jones Industrial Average.
It debuted with the index in May 1896, and was gone by August of the same year — replaced by the very exciting U.S. Cordage, a rope company.
It did, however, make a return appearance in 1928 through 1930.
North American was aptly named, making up a tremendous collection of utility companies that spanned the continent. But thanks to legislative and regulatory efforts that hoped to curb its massive scale and influence, it was broken up in 1946.
Many of the related companies continue to operate today in some form, including Pacific Gas & Electric that is now known simply as PG&E Corporation and Wisconsin Electric Power that operates under Wisconsin Energy Corp.
Original Dow Component #10: Tennessee Coal, Iron and Railroad
Current Status: Rolled into United States Steel Corporation (NYSE:X)
Tennessee Coal, Iron and Railroad stuck around until 1907, but its departure from the Dow was the least of its problems that year. During the financial crisis of 1907, the company was in dire straits and was snapped up for a bargain by none other than J.P. Morgan himself and his U.S. Steel megacorporation.
Tennessee Coal, Iron and Railroad operated for decades as a subsidiary of U.S. Steel, until in the 1950s it finally was rolled up as a much smaller arm of its parent simply as the Tennessee Coal & Iron Division.
There’s not much left of the old TCI&R … but it’s noteworthy that way back around 1910, the company made a move down to Alabama from Tennessee — and despite the ups and downs for the steel industry over the last 100 years, there is still a U.S. Steel plant in Fairfield, Ala. where Tennessee Coal, Iron and Railroad set up shop.
Of course, who knows what the future holds for Fairfield and U.S. Steel. A strong dollar and weak demand from emerging markets like China have both caused havoc for materials stocks of all kinds. While U.S. Steel is one of the last remaining steelmakers out there, it is in a tough business — and X stock has basically gone nowhere since 2011.
Original Dow Component #11: U.S. Leather
Current Status: Dissolved
U.S. Leather actually was a member of the original Dow via its preferred shares. But preferred or not, the stock didn’t last long, getting dropped in 1905.
It did return in 1912, though after a merger that had made it part of Central Leather Company. And then, Central Leather was dropped in 1924.
Despite dwindling in size and relying on consolidation, the remnants of the company emerged once more under the name United States Leather Company in 1927 — and kept that moniker until the 1950s when it went under and saw its assets were liquidated.
Sadly, it’s hard to figure out where the remnants of the company wound up after that.
Original Dow Component #12: U.S. Rubber
Current Status: Owned by Michelin (OTCMKTS:MGDDF)
U.S. Rubber was removed after less than a year as a member of the newly minted Dow Jones Industrial Average. But it did return in 1898 and lasted until 1928.
The company lasted for decades under the U.S. Rubber name, until it eventually was merged into Uniroyal around 1960.
U.S. Rubber’s branding faded after that merger, but a number of subsequent transactions didn’t stop the Uniroyal brand from persisting. B.F. Goodrich owned a controlling stake for a while, and eventually European giant Michelin purchased the company and retains ownership today.
Across it all, however, tires were continually produced under the Uniroyal brand and remain in production — including its iconic Tiger Paw performance tires that were a staple on muscle cars of the 1960s and 1970s.
The tire and rubber business has had plenty of ups and downs, but the consolidation over the last few decades has provided stability even if there isn’t a heck of a lot of growth. And since the Uniroyal brand has persisted this long, it seems unlikely that this last vestige of original Dow component U.S. Rubber will fade away anytime soon.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.
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