By G.C. Mays
With uncertainty around the globe and the probability of recession increasing, it's time to think about where the best places are to park your cash and earn a nice return while you weather the storm. Certainly the best place to start is with the blue chips. We are going to look at the five highest yielding stocks in the DJIA.
|YTD % |
|AT&T||T||... 29.04 ||... 5.92% ||... -1.16%|
|VERIZON COMMUNICATIONS||VZ||... 35.76 ||... 5.48% ||... -0.06%|
|MERCK||MRK||... 31.92 ||... 4.76% ||... -11.43%|
|PFIZER||PFE||... 18.21 ||... 4.39% ||... 4.00%|
|INTEL||INTC||... 19.77 ||... 4.25% ||... -5.99%|
Topping this list are two stocks from the telecommunications sector, AT&T and Verizon Communications. AT&T stock offers a yield of 5.92 percent while Verizon yields a more modest 5.48 percent. AT&T and Verizon Wireless already rule the roost with something in the neighborhood of 60% of all customers between the two firms. Both companies share similar gross margins but AT&T enjoys higher operating, pre-tax and net margins. Long-term earnings growth estimates have been recently lowered for both firms; however, the estimates are still in excess of the expected growth rate of the US and global economy. The dividend prospects looks good for both companies, but of the two I pick AT&T because its earnings have been smoother in recent years and despite losing Apple (NASDAQ:AAPL) iPhone exclusivity, it has not had a negative effect on its subscriber numbers. If it can somehow clear very high antitrust hurdles and snag T-Mobile, it could change the competitive landscape of the wireless industry.
The next two stocks are from the healthcare sector, Merck and Pfizer. Each firm has a healthy dividend with Merck and Pfizer offering comparable yields of 4.7 and 4.3 percent respectively, despite Pfizer cutting its dividend in 2009 to pay for its acquisition of Wyeth. I prefer Pfizer for a couple of reasons. First, it has higher gross and operating margins and its earnings have been smoother over the past few years. Second, the FDA recently approved Crizotinib and this will replace some of the lost revenues from the patent expiration of Lipitor in November. Pfizer also recently won its patent infringement case against generic drugmaker Teva pharmaceuticals (NASDAQ:TEVA), which effectively protects its Viagra patent until 2019. Merck is beginning to improve its operating margins but Pfizer's recent sucess in its drug pipeline will give superior downside protection versus the overall market in the case of a recession.
The last company yielding over 4 percent is from the technology sector. The level at which Intel is trading provides a dividend yield of 4.25%. The stock has historically tracked the US business cycle but with growing PC demand in emerging markets, the stock may begin to track global GDP in the near future as it has already benefited from the strength in these markets. With long-term earnings growth expectations of 10 percent, the dividend is secure. You might be able to pick up the stock for an even higher yield if expectations for a global recession are realized. Intel has traded in the $14-16 range during the two most recent recessions.
All five of these stocks yield more than 4.0 percent. However, only AT&T, Verizon and Pfizer have outperformed the Dow Jones Industrial Average year-to-date return of 2.53%, and only Pfizer has a positive year-to-date price return. But no matter which one of these you like, these high yielding blue chips are strong enough to help your portfolio weather the storm.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.