Top 10 Payout Yield Stocks

I'm not much of a ranter, but it doesn't make any sense to me to continue to focus on dividends when there has clearly been a structural change in the market (that happened way back in 1982). (For newer readers there is background reading with lots of links at the end.)

Dogs of the Dow is simply the top ten stocks in the Dow sorted by dividend yield.
Flying Five further sorts those by lowest price.
Net Payout yield is the top ten Dow stocks sorted by net payout yield.

For the past 30 years or so the Dogs strategy has outperformed the DOW by ~ 3% per annum, and the Net Payout Yield strategy another 3% on top of that (ditto for Flying Five). All underperformed the Dow in 2007 but had monster years in 2006.

2008 is shaping up to be potentially the worst on record since 1972 for the Dogs and Flying Five strategies. Previous worst years are -8% and -15% respectively. Payout Yield is doing much better:

Dow: -10%
Dogs: -15%
Flying Five: -22%
Payout Yield: -6%

You can find the current payout yield stocks here. The top 10 right now are:

Home Depot (HD)
Pfizer (PFE)
McDonald's (MCD)
IBM (IBM)
Disney (DIS)
AT&T (T)
GE (GE)
Exxon (XOM)
Alcoa (AA)
Boeing (BA)

Flying Five (Link to original post here.)
Dogs of the Dow (Link to original post here.)
Net Payout Yield (Link to original post here.)
Assets and Defending Them.

Comments

[CharlestonI...:]

Bank of America pays the highest dividend of the Dow Stocks, and is not listed. Should anyone really take this web site seriously?

2008 Jun 22 04:34 AM

[Goody:]

CharlestonInvestor! BAC has yet to earn their dividen this year. They are going to buy a mortage company that is highly prone to defaults (countrywide). So, i do not see BAC 8% dividend being kept and if they follow their fellow banks... when they cut their dividend becuase they have, their stock price will shed like crazy.

2008 Jun 22 04:55 AM

[wendling_r:]

Dividends are the first thing to be cut when a stocks price comes under pressure. You must also consider how the specialist who runs the stocks price manipulates it to his benefit.

For those individual investors interested in how he is able to do this and also view my opinions on where this stocks price is headed in the short and long term and what information I use to base those opinions on go to the following website bearfactsspecialistrep.... Click on the top of the Home page where it says, “Free Stock Reports” and you will be taken to the reports page. There you can read the reports on this issue and others. It will cost you nothing except the amount of time it takes you to read the report and any other pertinent information that you find interesting on how the “Specialist System” works and how it defrauds the average investor out of his and her hard earned money’s. The choice is yours, learn how to invest properly and make money in the market and this stock or continue to invest as you have in the past and continue to accumulate losses in the market.

Thank you for your time,

Richard

2008 Jun 22 05:29 AM

[notsosmart:]

thanx,richard

2008 Jun 22 09:59 AM

[sharksm:]

This article is about as useless as teats on a horse. If Investors want higher yield with safety, slow capital gains and increasing dividends, they would do well to look at the MLP pipeline stocks. I have owned thousands of shares of KMP, OKS, MWE, TPP, EEP & NRP, all pipelines except NRP, which is a coal L.P. All pay over 6%, have raised their dividends between once and four times a year, for the past five years and the yield is tax deferred until the stock is sold, since most of the dividend is return of capital. These stocks are paid solely to move product (natural gas or oil) through a pipeline and are paid by volumn and are not effected by the price of the commodity. Total return for most of these stocks has been between 12%-18% a year since 2,000. Advising an Investor to buy a stock with a high dividend likely to be reduced is idiotic.

2008 Jun 22 10:13 AM

[lakeside:]

To charlestoninvestor: the link was to the top ten PAYOUT YIELD STOCKS. Check the link -- you will see that BAC has a -2.8 PAYOUT YIELD STOCK for the year. BAC pays a huge dividend -- but it's going to be cut or not paid not time around.

2008 Jun 22 10:46 AM

[lakeside:]

Also, look at FRO: 16% dividend; P/E of 8; doubled in price in last year. FRO has been missed by every talking head except Jim Cramer.

2008 Jun 22 10:48 AM

[notsosmart:]

i bought fro long before cramer mentioned it.it was $30 then. since nobody has figured out a way to pave over the ocean this mover of oil should be a good bet for a while. @ my original investment my return has been at over 30% ann.i emailed the ceo to thank him for a job well done & got a personal reply.any of the overpaid underperfoming usa ceo's going to answer personally.

2008 Jun 22 11:15 AM

[imthewiz:]

I just bought this. NAT 12% and the CEO just said on Craker that they expect to raise it next Q.

2008 Jun 22 01:14 PM

[Stuart Scha...:]

Hi all,

Yep - we've got to agree with you. This article is pretty inferior - useless and not very helpful to investors.

Anybody who has done the least bit of research on investing knows that a high dividend yield isnt necessarily good. Article sounds like a bit of filler to me.

Interesting take was the comment on the 'structural change in the market'. No joke. I'm sure other folks will say that the structural change took place in 1982 and others will say 1987...

What's the point of identifying a year? It is just an arbitrary point in time - and it doesn't even help an investor to know that this 'structural change' has occurred. Especially if it was supposed to have taken place over 20 years ago.

Regards,
Staff at TVI
todaysvalueinvestor.bl...

2008 Jun 22 06:33 PM

[stonescrazy:]

Thw dogs of the Dow are in order of the worst total performing stocks{Total Return} in the previous years Dow, inclusive of Divifends

2008 Jun 22 06:41 PM

[WorldBeta:]

The problem with Seeking Alpha pulling content from a blog is that is is often taken out of context from what long time readers are aware of. To alleviate all of the confusion regarding my post, here is some history.

Over a year and a half ago I profiled an academic paper by Boudoukh, Michaely, Richardson, and Roberts is titled, "On the Importance of Payout Yield".

Dividends are only one way of returning capital to shareholders. Share repurchases are another such method (see MSFT), and since they are not taxed like dividends, it can be argued they are a more efficient way of returning profits. Buybacks represent about half of all shareholder payouts, and have increased steadily since the early 1980's. There is a structural reason for this, and is due primarily to the SEC instituting rule 10b-18 in 1982 - providing a safe harbor for firms conducting repurchases from stock manipulation charges. See Grullon and Michaely [2002] for more info on the impact of Rule 10b-18.

The authors of the above paper examined the payout yield and net payout yield, whose formula is:

Payout Yield = $ spent on dividends + $ spent on share repurchases
(Net payout is simply subtracting the $ raised through new share issues to the above formula)

The authors find that "the widely documented decline in the predictive power of dividends for excess stock returns is due largely to the omission of alternative channels by which firms distribute and receive cash from shareholdlers." Additionally, while dividend yield has lost its predictive ability over time, the payout yield has remained a robust indicator for excess stock return.

About a year later I posted a review of another academic paper titled "Asset Growth and the Cross-Section of Stock Returns" by Schill, Gulen, and Cooper. This paper is even more encompassing. It basically says a decrease in total assets is good - things like dividends, buybacks, spinoffs, and paying down debt. Ominous signs for future stock performance - acquistions, share issuances, borrowing, and sitting on lots of cash.

My article is only an update to these previous articles and hlighlights the terrible performance of two strategies that rely on dividend based screens.

2008 Jun 22 07:52 PM

[Vinsanity:]

For goodness sake, it appears that less than half the commentors even read the headline, let alone the article. This is not about dividend yields!!! My faith in the intelligence in this industry wanes on...

2008 Jun 23 10:19 AM

[msweezer:]

for imthewiz .... what is NAT? thx

2008 Jun 23 07:07 PM