In my previous article on the Stray Dogs of the Dow, I discussed 5 dividend yielding stocks which form a subset of the famous Dogs of the Dow. I showed that these stocks have been more consistent than the other Dogs of the Dow in so far as they have appeared on the list more often. I called these the Stray Dogs of the Dow and promised to discuss how they performed in an in-depth article. So here it is.
AT&T (T): The telecom company's dividend yield stands at 5 percent and its most recent dividend amounts to $0.44 a pop. The stock began this year with the dividend yield of 5.69 percent but you need to keep in mind that decline in dividend yield is not necessarily a bad thing as the stock itself has appreciated by about 18 percent this year. The company surpasses its peers like Sprint Nextel Corp. (S) and Verizon Communications (VZ) which have dividend yields of 0.00% and 4.6%, respectively. While AT&T's dividend history is impressive, it is also important to analyze whether the company will be able to maintain the dividend in future as well. Last year, AT&T went through an M&A fiasco, when its T-Mobile merger deal did not work out. The company not only lost out an attractive opportunity to consolidate its position in the market, but now it is also facing the fallout of the upcoming merger between Sprint and Softbank. While the merger is not likely to be a big threat to AT&T, the company is certainly going to face tougher competition from now on. The stock is favoured by many prominent fund managers including AQR Capital Management and Adage Capital.
E.I. Du Pont de Nemours and Company (DD): This technology company with a mouthful name comes with an attractive dividend yield of 3.5 percent. It also maintained an above 3 percent dividend yield for all its quarters this year. Additionally, the stock grew about 9 percent this year. The company is set to announce its third quarter results on October 23rd and it is expected to report an 11.9 percent drop in its quarterly revenue to $8.14 billion. So, while the company has a healthy capitalization of more than $46 billion, its growth rate seems to be on the lower side. The stock currently trades at the Price Earnings ratio of 13.47, which makes it a cheaper stock in comparison to its major competitor, Dow Chemical Company (DOW). DOW, however, currently provides a 4.30 percent dividend yield, albeit unlike Du Pont, Dow Chemical's dividend history is full of bumps and inconsistencies. Plus, Du Pont stock also recorded better capital growth than Dow Chemical this year.
Pfizer Inc. (PFE): Though its dividend yield has been declining over the years, Pfizer still maintained its yield at around 3.5 percent this year. Its yield is currently at 3.42 percent, which looks a tad less impressive compared to its peer, GlaxoSmithKline's (GSK) dividend yield of 4.5 percent. However, the stock beat GSK handily with capital appreciation of about 19.41 percent. The pharma company recently faced a setback when its advanced kidney cancer treatment Inlyta failed to meet its main late stage study goal. The stock is trading at considerable premium as its Price Earnings ratio hovers around 22.44, in comparison to GSK's P/E ratio of 13.68 and Bristol Myers Squibb's (BMY) 16.44. However, even with premium pricing, the stock is in good books of many analysts such as Jefferies, which recently reiterated its Buy rating with a price target of $28.
Verizon Communications Inc. : A worthy competitor to our star stray dog AT&T, Verizon boasts a dividend yield of 4.70 percent. The stock has consistent dividend yield performance and has also done well on the capital appreciation front with 13 percent growth. Verizon, along with AT&T, controls 80 percent of the postpaid market in the U.S. The telecom company just reported its third quarter results and announced 16 percent growth in its profit. Its earnings mainly grew on the strength of its wireless business, which is increasingly becoming more important than ever for telecom companies. As for the future prospects of the company, it is likely to feel a little heat from the frantic M&A activities happening in the telecom sector. However, its prominent position in the market is not under any major threat.
Merck & Co. Inc. (MRK): The stock grew 25.89 percent this year, in addition to a 3.59 percent dividend yield, which is a wee bit lower than its usual 4%+ yield. With market capitalization of $144.5 billion, this is one safe pharma stock to be added to your portfolio. The stock is rated Outperformer by MP Advisors and its price target is at $50. Merck recently announced its collaboration with Theravance (THRX) for the development and marketing of new small molecule therapies. The company will also receive a global exclusive license for its drug candidates. The stock is currently trading at its 52 weeks high mark, showing its calibre.
Conclusion: All of the 5 stray dogs have consistently produced dividend this year. What is more important from an investment perspective, each has shown considerable growth in/near double digits. Although some of the companies seem to be a little overpriced considering their PE ratios, they are all very worthwhile investments for dividend-seekers.