By Ann McQueen
Known as the “Dogs of the Dow,” these five stocks were the top five highest yielding in the Dow Jones Industrial Average as of market close on Dec. 31, 2010, according to this site. We revisit them here to see how they are maintaining their rankings. This is the first of a two-part series.
AT&T (NYSE:T) – On Dec. 31, 2010, T was ranked as the highest yielding Dow stock (as shown in link above). It closed at $29.38 and yielded 5.85 percent. Still in first place, T is currently trading around $27.40 with a dividend yield of 6.2 percent. Earnings per share is $3.44, and its price to earnings ratio is 7.98. Other metrics remain solid. Its quarterly revenue growth is 2.2 percent, and its gross margin is 56.91 percent. Its return on equity is 18.29 percent, and its debt to equity ratio is 58.34. Its market capitalization is $162.73 billion.
T’s competitor, Verizon Communications Inc. (NYSE:VZ), earned the Number 2 Dog of the Dow spot, and more information can be found below. Another competitor, Sprint Nextel Corp. (NYSE:S), does not pay a dividend.
T announced that it plans to release new Windows Phones and update Windows Phone Mango later this fall, as noted in this article. Other recent news has focused on a federal anti-trust suit against the telecommunications giant’s proposed acquisition of T-Mobile USA, as discussed here. Overall, its performance deserves the blue ribbon. We give it “Best in Show.”
Verizon Communications Inc. (VZ) – VZ was the second highest yielding Dow stock as of the end of last year with a price of $35.78 and a yield of 5.46 percent.
Currently it is trading around $34.70. Like AT&T, it is trading below 2010 year-end prices. VZ’s dividend yield is 5.7 percent, its earnings per share is $2.23, and its price to earnings ratio is 15.58. Its quarterly revenue growth at 2.8 percent is slightly higher than T’s number, and its gross margin is 59.69 percent, which is also a little higher. At 16.23 percent, VZ’s return on equity is a little less, and its debt to equity ratio is comparable at 59.51.
VZ’s subsidiary, Verizon Wireless, announced Monday that it would not pay an annual dividend to VZ and its other parent company Vodafone Group Plc (NASDAQ:VOD). Still, we believe this dog will stay on track in the long run.
Pfizer Inc. (NYSE:PFE) – Last year’s third place dog PFE closed Dec. 31 at $17.51 with a dividend yield of 4.57 percent. It is now in fourth place on the list of daily “Dogs of the Dow.” Trading around $18, its current dividend yield is 4.4 percent. Earnings per share is $1.07. PFE’s price to earnings ratio is 16.86.
This Motley Fool article provides a nice analysis of PFE, noting that it continues to be priced at a bargain, though its ability to maintain current growth could be less than ideal. According this article, The Street raised its recommendation to “Buy” due to increased estimates by analysts at Jefferies.
The company shows a decline in quarterly revenue of 0.90 percent. Its gross margin is 75.85 percent, return on equity is 9.83 percent, and debt to equity ratio is 46.89. Its competitor Novartis AG (NYSE:NVS), which is trading around $54.14, offers a dividend yield of 3.6 percent and earnings per share of $4.24, but NOV is not in the Dow Jones Industrial Average.
Even though it lost its lead over competitor Merck & Co. (NYSE:MRK), we don’t see any reason that PFE’s place in the pack should be compromised in the long run.
Merck & Co. (MRK) – Last year’s fourth place dog is now in third. It closed Dec. 31 at $36.04 with a dividend yield of 4.22 percent. It is now trading around $31.50 a share with a dividend yield of 4.8 percent. MRK’s earnings per share is $0.93, and its price to earnings ratio is 33.99. Quarterly revenue growth is 7.1 percent. Gross margin is 65.22 percent. Return on equity is 5.19 percent, and its debt to equity ratio is very nice at 31.60.
Its competitor GlaxoSmithKline plc (NYSE:GSK) is trading around $40.40. Its dividend yield is impressive at 5.1 percent. Earnings per share is $2.00, and price to earnings ratio is 20.23. Other metrics aren’t as strong. GSK posted a decline in quarterly revenue of 4.30 percent. Its gross margin is strong at 73.36 percent. Return on equity also looks good at 36.26 percent, but its debt to equity ratio is high at 161.82.
This Seeking Alpha article includes MRK on its list of five Dow stocks with yields twice as much at 10-year Treasuries. Another article also looks at high yielding dividend stocks as viable options to traditional fixed income investments such as bonds that pay today’s low interest rates.
Though GSK has many of the traits desired in a strong working dog, it is not a purebred like its counterparts in the Dow Jones Industrial Average. MRK, however, is still outperforming its competition, and we believe it is still deserving of a championship title.
Kraft Food Inc. (KFT) - Apparently, this dog crawled under the porch to take a nap. Last year’s fifth place Dog of the Dow closed on Dec. 31 at $31.51 and offered a dividend yield of 3.68 percent. It is currently trading around $34.25 with a dividend yield of 3.4 percent. In reality, KFT’s dividend yield places it in a tie for tenth place with daily dog Proctor & Gamble (NYSE:PG), which appears in Part II.
KFT shows quarterly revenue growth of 13.3 percent. Its gross margin is 35.76 percent, and its return on equity is 8.51 percent. Debt to equity ratio is 75.82.
Its competitor Nestle SA (OTCPK:NSRGY) does not pay a dividend.
A Seeking Alpha article found here notes that billionaire investment guru Warren Buffett recently reduced his company Berkshire Hathaway’s (NYSE:BRK.A) holdings in the international food company, though the author recommends continuing to hold KFT. We feel it’s best to let sleeping dogs lie.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.