Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of title insurer Old Republic (NYS: ORI) were charging higher today, gaining as much as 16% in intraday trading after it was announced that the stock would be added to Standard & Poor's High-Yield Dividend Aristocrats list.
So what: The S&P High-Yield Dividend Aristocrats tracks the 60 highest-yielding stocks of the S&P 1500 that have increased their dividends every year for at least 25 years. Along with Brady Corp. (NYS: BRC) , Old Republic will be added after the close of trading on Wednesday when the index rebalances.
Investors often flock to a stock when it's about to be added to a new index because it requires index-tracking funds -- for instance, in this case, the SPDR S&P Dividend ETF (NYS: SDY) -- to buy the stocks to stay in line with the indexes they're tracking.
Now what: The addition of a stock to an index like this is, to a large extent, just an exercise in checking boxes. That is, if the stock is part of the S&P 1500, has increased its dividend for 25 years or more, and has a high yield, then it's ready to be corralled into the index. So the addition of Old Republic to the index shouldn't be viewed as any sort of new S&P stamp of approval.
Additionally, though there is often buying pressure from index funds when a stock gets added to a new index, that reactionary share demand doesn't do much to alter the fundamentals of the company in question.
Investors who are either already invested in Old Republic or have it on their radar would be wise to stay tuned in to the business and underlying fundamental performance and tune out the technical market factors like what we're seeing today.
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