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Dow 30 Dividend Deals

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October 09, 2008 – Comments (5)

On Tuesday I heard someone on a CNBC show mention that the yield on the Dow Jones Industrial Average was higher than 10-year treasuries. Decided to check and it's true. At Wednesday's closing, a portfolio equally weighted across the thirty DJIA stocks would have a dividend yield of 3.77% compared to the 10-year at 3.63%. I used the dividends for the DJIA stocks as reported on Yahoo, except the payout for Bank of America (BAC) was adjusted to account for their recent announcement halving the dividend.

The individual dividend yields range from a high of 8.89% for Citigroup (C) to a low of 0.8% for Hewlett Packard (HPQ). Thirteen of the thirty stocks have higher yields than the 10-year. Some of those high yielders are in troubled industries or may have difficulty maintaining the payout. However, a number of the stocks topping the payout for 10-year treasuries aren't in the financial business, are profitable and have solid businesses. Examples include McDonalds (MCD), Kraft (KFT), Home Depot (HD), DuPont (DD), Alcoa (AA), and Merck (MRK). For those willing to venture into banks that have mostly stayed out of trouble, JP Morgan (JPM) tops the 10-year. Chevron (CVX), Caterpillar (CAT), 3M (MMM) and Intel (INTC) are within a quarter point of the 10-year. You may not agree with the 'solid business' comment for all these names, but the point is there are companies in a number of sectors with very attractive yields. Many of them have the wonderful habit of raising the dividend year after year after year.

I also did a quick scan of cash and debt levels for many of the DJIA 30. An investor who wants to protect against the risk of credit tightening has several DJIA companies to choose from that have more cash than debt. That insulates them from needing to tap the credit markets and in some cases they could extend credit to their customers if needed to keep operations moving. Names include HPQ, ExxonMobil (XOM), CVX, Microsoft (MSFT), MRK, and INTC. Johnson and Johnson (JNJ) just misses being net cash positive. I had expected MSFT to top the net cash rankings, but it was a distant second among the DJIA stocks to XOM. Note to XOM CEO Rex Tillerson - $30 billion net cash? Buy a company, raise the dividend, put some of that cash to work!

I suspect a number of factors other than tight credit markets are pulling the stock market lower. Business news reports have covered hedge funds selling to meet redemptions. Retail investors have probably been scared into redeeming mutual fund shares. Both of those scenarios force fund managers to sell regardless of the market price driving indexes lower and scaring more investors into redeeming. Many buyers are probably sitting on the sidelines waiting for some sign that the worst is over and for clarity about government interventions. I have no clue when the worst will be over, but there are some good bargains out there for income investors.

The Dow Jones is certainly not the only place to look for good dividend yields.  I'm tossing these names out as examples, not recommendations. There are some good prices on solid companies out there and it's a good time to start looking at what Mr. Market has put out on the clearance aisle.

Disclosure: At time of posting, I'm long MCD and CVX, but have no position in any other company mentioned.

5 Comments – Post Your Own

#1) On October 09, 2008 at 1:43 AM, DemonDoug (81.58) wrote:

MMM, DD, JNJ are my favorites.  KO, VZ, and T also there, very steady.

Of course none of them can hold a candle to PM (kicked out of the dow30 with MO when they split).   Yielding almost 5%, and just going to kick ass in every which way in the next 10-20 years.

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#2) On October 09, 2008 at 9:00 AM, Gemini846 (58.67) wrote:

The flight to quality has made many of these names rather expensive compared to the market as a whole. I'm not saying they are bad buys but I'm thinking there might be better options if you need to get out of cash for some reason.

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#3) On October 09, 2008 at 11:10 AM, awallejr (83.92) wrote:

Excellent blog.  rec for you.

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#4) On October 09, 2008 at 12:44 PM, colonelnelson (44.99) wrote:

Bingo!  Thanks for the post!

I am acquiring more MMM with every drop.  I may be a fool catching a falling knife, but I suspect I'm getting a tremendous deal.

 

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#5) On October 09, 2008 at 8:31 PM, rd80 (98.46) wrote:

Thanks for the comments.

DemonDoug - The only reason I didn't mention VZ and T in the post is I'm a little worried about their high debt levels.  Combined with high payout ratios, I think they may be a little reluctant to hike the payouts.  That said, I own some T and knowing the dividend is coming helps ease the pain.  Hard to go to far wrong with any of the names you mentioned at these prices.  And they all got cheaper today.  I can't bring myself to buy a cigarette company, I know it's irrational and I have no problem with anyone who wants to own it, just not for me.

Gemini846 - We're always open to hear about better options :)  Post away.  Most of my portfolio is dividends payers, trying to build a core that will produce retirement income in 10  15 20 years down the road.  Many of the bluechips haven't been at these valuations in years. 

awallejr - thanks.

colonelnelson - I've been catching a few falling knives as well lately.  I keep telling myself I'll be glad I bought MCD and a few others five years from now, even if I jumped in a little too early.

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