More 2011 Dogs Of The Dow Long Ideas

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 |  Includes: ABT, CVX, DD, DOW, INTC, JNJ, MCD, TXN, XOM, YUM
by: Investment Underground

By Ann McQueen

These stocks were 2010’s sixth through tenth highest yielding stocks in the Dow Jones Industrial Average, according to www.dogsofthedow.com. In this second and final part of our series, we look at how they continue to perform.

Johnson & Johnson Inc. (NYSE:JNJ) - With a closing price of $61.85 on Dec. 31, 2010, JNJ’s dividend yield was 3.49 percent. It was the sixth highest yielding Dow stock. Now it is in eighth place. It is currently trading around $63.60 a share, and its dividend yield has increased to 3.6 percent. JNJ’s earnings per share is $4.18, and its price to earnings ratio is 15.21.

Headlines tend to focus on the value in JNJ’s current pricing and its quality as a long-term income investment. This article offers some options trading ideas for investors with greater tolerance for risk.

JNJ’s competitor Abbott Laboratories (NYSE:ABT) may also provide dividend investors with steady income, though it is not in the DJIA. ABT is currently trading around $50.51 with a dividend yield of 3.8 percent. Its earnings per share of $3.28 is less than JNJ, and its price to earnings ratio of 15.39 is a little higher.

JNJ’s quarterly revenue growth of 8.3 percent is slightly slower than ABT’s 9 percent. JNJ’s gross margin of 69.25 percent is also more appealing than ABT’s 58.95 percent. JNJ’s return on equity is 20.20 percent, and its debt to equity ratio is 30.14. This compares to ABT’s return on equity of 22.12 percent and its debt to equity ratio of 68.83. JNJ has been paying a dividend since 1970, whereas ABT’s track record dates back to 1983.

With JNJ’s dividend payment track record, solid earnings and other key metrics, this dog remains an investor’s best friend.

Intel Corporation (NASDAQ:INTC) – As of the end of 2010, INTC closed at $21.03, and its dividend yield was 3.42 percent. It held seventh place on the list of “Dogs of the Dow.” Currently, it is in fifth place, trading around $20.25 with a dividend yield of 4.3 percent. Its large-cap, non-Dow competitor Texas Instruments Inc. (NASDAQ:TXN), which is trading near $26.30, is currently yielding only 2 percent.

INTC’s quarterly revenue growth is promising at 21.1 percent, whereas TXN is showing a quarterly loss of 1.1 percent. INTC’s gross margin of 63 percent compares to TXN’s 52.35 percent. Other metrics fare well for INTC. Its return on equity is 25.91 percent, and its debt to equity ratio is 4.82. TXN’s return on equity at 30.39 percent looks stellar, and its debt to equity ratio is 32.08.

INTC receives a lot of headline attention for its yield and stability. This Seeking Alpha article recommends INTC for retired investors because of its dividend increases and earnings growth.

As an established company with a strong record, encouraging numbers and market capitalization, this dog continues to prove its loyalty.

E.I. du Pont de Nemours and Company (NYSE:DD) – Last year’s eighth place dog, with its price of $49.88 and dividend yield of 3.29 percent, is now in seventh place, trading around $44.28 and yielding 3.6 percent. Earnings per share is $3.61, and its price to earnings ratio is 12.27. Quarterly revenue growth is strong at 19.2 percent, and its gross margin looks good at 28.63 percent. We like its return on equity of 31.41 percent, and but we have some concerns about its debt to equity ratio of 118.35.

Its large-cap competitor Dow Chemical Company (NYSE:DOW), which is trading around $25.75, yields 3.9 percent. It is not in the DJIA. Earnings per share is $2.18, and price to earnings ratio is 11.81. DOW’s quarterly revenue growth is slightly less than DD’s at 17.8 percent, and its gross margin is much lower at 16.19 percent. Its return on equity is 12.59 percent, which is much less than DD, and its debt to equity ratio is 80.23.

Headlines favor DD. In particular, this writer likes DD’s return on equity, dividend yield and its global presence. This dog hunts.

McDonald’s Corporation MCD – Last year’s ninth place dog is lost, as it is nowhere to be found on the list of the current ten highest yielding DJIA stocks. MCD closed 2010 at $76.76 with a dividend yield of 3.18 percent. Currently it is trading about $10 higher, around $86.15. Its dividend yield is 2.90 percent.

Let’s walk this dog before we decide to bring it home from the pound.

Its earnings per share is $4.94, and its price to earnings ratio is 17.44. Its quarterly revenue growth is 16.10 percent, and its gross margin is 39.74 percent. Its return on equity37.39 percent, and its debt to equity ratio is 82.15.

Its competitor, Yum! Brands, Inc. (NYSE:YUM), which is trading around $52 a share, offers a lower dividend yield of 1.9 percent. Its earnings per share is $2.49, and its price to earnings ratio is 20.91. YUM’s quarterly revenue growth, at 9.4 percent, is not as strong as MCD, nor is its gross margin of 27.37 percent. YUM’s return on equity of 79.19 percent looks really good, but its debt to equity ratio is 174.15.

For betting investors, MCD may find its way home with a covered call strategy reviewed in this article.

Chevron Corp. (NYSE:CVX) – CVX’s 2010 closing price of $91.25 and its dividend yield of 3.16 percent earned it a ranking of the tenth highest yielding stock in the DJIA for the year. Currently trading around $95.90 and yielding only 3.3 percent, it is no longer among the daily dogs. CVX’s earnings per share is $11.45, and its price to earnings ratio is 8.38, so it remains a viable, long-term investment for income seekers. CVX’s quarterly revenue growth is 30.60 percent, and its gross margin is 32.58 percent. This compares to its Dow peer Exxon Mobil Corporation’s (NYSE:XOM) 36.30 percent quarterly revenue growth and 31.45 percent gross margin. XOM’s dividend yield is 2.6 percent. Its earnings per share is $7.59, and its price to earnings ratio is 9.47. CVX’s return on equity of 21.33 percent and debt to equity ratio of 9.89 hold up well to XOM’s 25.32 percent return on equity and 10.19 debt to equity ratio.

Recent CVX headlines focus on talks with the Russian company Rosneft Oil Company (ROSN.ME) to develop projects in the Arctic and Black Seas, as mentioned in this news brief. This article includes CVX in its “Coffee Can Portfolio,” among other stocks featured in this series, for its dividend payment track record, sustainable performance, and bargain price discounted by recent whole market declines.

Even though this dog lost its spot at the foot of the list of the ten highest yielding stocks of 2010, it still has a place in the back yard, albeit buried in a coffee can.



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.