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Berko: Give Trump a chance to stimulate business expansion

By Malcolm Berko

Published: February 4, 2017, 6:00am

Dear Mr. Berko: Several times in the past couple of months, you’ve said the Dow Jones industrial average will reach 30,000 in the coming 10 years. That would be a 10,000-point increase. The Dow closed above 10,000 in February 1999, and in the 18 years since, the Dow has moved to only about 20,000 points. What makes you think it could do 10,000 points in the next 10 years? Donald Trump is a clown, and I think your optimism is stupid. My stockbroker recommends 50 percent cash. But just in case 30,000 is possible, what stocks would get me a 50 percent return in 10 years?

— P.S., Jonesboro, Ark.

Dear P.S.: Warren Harding, in the third year of his presidential term, died from a heart problem, making his vice president, Calvin Coolidge, the 30th president of the United States. In 1924, with his popularity zooming in the soaring economy of the Roaring ’20s, he easily won the election. Silent Cal, as he was called, is known for this famous quotation: “The chief business of the American people is business.” We need a businessman in the Oval Office, not a politician. My definition of politics comes from two words: “poly-,” a combining form meaning “many,” and “ticks,” a noun denoting bloodsucking parasites.

Wise economists and knowledgeable observers feel there’s a good possibility the Dow will reach 30,000 in the coming decade. They believe that Trump, whose reputation is as a sharp-elbowed businessman, will use his business acumen in the Oval Office. Informed insiders know that Trump’s business experience — and the businesspeople he has appointed to Cabinet positions — could help eliminate the choking red-tape bureaucracy that strangles business growth and make it easier for industry to expand. Give him a chance.

Dan Saul Knight, a math genius from IT&T College, believes a 30,000 Dow will soon be a fait accompli. Dan says that if the 30 stocks in the SPDR Dow Jones Industrial Average ETF (DIA-$197) increased by an average of just 6 percent annually for seven years, the Dow would top the charts at 30,000. So a 30,000 Dow may be easier than many pessimists can imagine.

The average dividend yield on the 30 stocks that make up the Dow Jones industrial average in 2016 was 2.5 percent, so if you invested $10,000 in the DIA last year, you’d have received $250 in dividend income. Now, if those dividends were to increase in value by a measly 3.5 percentage points (that’s a 140 percent increase in the dividen), your total return would be (2.5 plus 3.5) 6 percent. And according to Dan, a 6 percent return, with all dividends reinvested, would grow your $10,000 DIA investment to $15,000 in seven years and the Dow Jones industrial average from 20,000 to 30,000. It’s really rather simple. Dan says, “Between 1900 and 2016, the average annualized return, just on the DIA, was 4.8 percent, not including dividends.” And “the actual average annual total return for the DIA (with all dividends reinvested) for the last 116 years was 9.6 percent. Therefore, a 6 percent average annual total return when the historical average is 9.6 percent is an easy-pie shoo-in.”

You could hedge your bet by buying 100 shares of DIA and telling your broker to mark the purchase “reinvest dividends.” DIA pays a quarterly 56-cent dividend that usually increases each year. So the day the DIA dividend is paid, your broker could purchase a fractional share of DIA, which in this instance would be 0.28 share. Therefore, at the end of the first quarter, you’d own 100.28 shares paying a dividend. And at the end of the year (three more quarters of reinvesting dividends), you’d own 102.26 shares that pay a dividend. Every quarter, your number of shares would increase, and so would the dividend income from the additional shares. There’d be no cost, and it would be automatic. And each quarter, your account would report the number of increasing shares purchased by your increasing dividends.

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