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Jim Trippon is an Amazon.com bestselling business and finance author, a practicing CPA, and a fee based investment advisor. His portfolio of companies includes J.M. Trippon & Company CPA, Trippon Wealth Management & Trippon Financial Publishing. Jim has dedicated his business career to... More
My company:
Trippon Financial Research, Inc.
My blog:
Global Profit$ Alert
My book:
Stay Rich Forever: Retirement Planning Secrets of Millionaires and How They Can Work For You!
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  • Dividends And The Dow Revisited
    There's a history of investor interest in the 30 stocks and their dividends that comprise the Dow Jones Industrial Average. There's even an approach called "Dogs of the Dow, " which Michael O'Higgins featured in his book "Beating The Dow." Its relative simplicity struck a chord with many investors. The approach was to take the ten highest yielding Dow stocks, buy them and hold them for a year. At the end of that year, you re-evaluate the group, rebalance it so once again you have the ten highest yielders, and repeat the process. The idea is that the high yields correspond to relatively low stock prices for each of the stocks, and that the bad years for these stocks are then followed by good ones.

    Five Year Chart of Dow Component AT & T

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    How Well Does This Approach Work?

    So the premise for profit is that in addition to the dividends, the high yield will signal a relative low stock price for the stock, which is expected to bounce back with price appreciation in the succeeding year while the investor also collects the larger than usual dividend. It's implicitly a value oriented approach. How well does this "Dogs" theory work? With backcasting, or testing via data from the past, according to an article on Investopedia.com, from 1957 to 2003, the Dogs' annual return for this period was 14.3% while the Dow returned 11%. During a shorter span, from 1973 to 1996, the Dogs' annual return was 20.3% versus 15.8% for the entire Dow. We realize that picking selected years can provide a best case scenario, but the method has generally delivered roughly 3% better return for the Dogs than the Dow as a whole. Of course with any method the key is whether or not you can use it to generate future profits.

    The Dow And Dividends Now

    Right now the 30 Dow stocks feature dividends with current yields ranging from Bank of America's (NYSE: BAC) 0.6% to AT & T (NYSE: T) 5.9%. There is a batch of stocks currently yielding in the 2% to 3% range, with several that yield less than 2% and a couple of stocks in the 4% range. Investors no doubt are aware that Treasury bills now yield in a range from a low of effectively 0% with the 3 month bill to 2.95% on the 30 Year Treasury Bond. Only the 5 year at 1.00%, the 10 year at 1.99% in addition to the 30 year yield 1% or more. So this is the world as it is with yields, without even mentioning CDs, money markets and savings and checking accounts.

    Ten Highest Current Yielding Dow Stocks

    Currently the ten highest yielding stocks feature familiar names—which is one of the appeals of investing in the Dow stocks, dogs or not—such as AT & T (NYSE: T), General Electric (NYSE: GE), and Travelers (NYSE: TRV), from a mixture of different industries. These are blue chips that have a bit of diversity with telecoms, pharmaceuticals, industrials, consumer products companies, even a tech stock. Large cap slow growers mark the Dow as well as the ten highest yielders, and with the high visibility of these companies, investors usually feel they know what they're getting. Again, that's part of the appeal. The chart below features the ten highest Dow current yielders, according to recent data. The group averages a yield of 4.09%, certainly far better than the low yields of Treasurys and the like.

    Ten Highest Current Yielding Dow Stocks

    AT & T (NYSE: 5.9%
    Verizon Communications (NYSE: VZ) 5.4%
    Merck (NYSE: MRK) 4.6%
    Pfizer (NYSE: PFE) 4.2%
    DuPont (NYSE: DD) 3.6%
    General Electric (NYSE: GE) 3.6%
    Intel (Nasdaq: INTC) 3.6%
    Johnson & Johnson (NYSE: JNJ) 3.5%
    Kraft Foods (NYSE: KFT) 3.3%
    Travelers (NYSE: TRV) 3.2%

    Modified Approaches

    Since the Dogs of the Dow approach began, there have been several ways investors have modified the method. Some have picked the lowest five stocks in the Dow on the basis of share price, while others have picked the four highest stocks on the basis of their share price. Then there's the Motley Fool approach which vastly shifted the allocation percentages per stock selected. There have been further modifications of these methods, and no doubt individual investors have done many more. Some of these methods seem to employ an arbitrary methodology, yet as the chart below suggests, there is evidence that they've worked. This is where the old caution "past performance is no guarantee of future results" might come in as a handy reminder, though.

    Some Dow Dividend Investing Approaches 1973-1996

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    Other Ways

    There are many ways to invest in Dow stocks either for dividends or a combination of dividends and capital appreciation. Many investors are uncomfortable with an automatic, mechanical selection method such as the Dogs' method uses and want to use their own judgment. You'll notice that with the top ten yield list, some very blue blue chips such as McDonalds (NYSE: MCD), Procter & Gamble (NYSE: PG), and others are didn't make the list. Yet these stocks have historically done very well and investors have done well by them. If investors are interested in what blue chips have to offer but aren't necessarily wedded to the Dow stocks, they can find substitutes, similar non-Dow stocks which might yield a bit more. Kimberly Clark (NYSE: KMB) is a consumer products name that currently yields 3.9%, a bit more than P & G's 3.2%, while Conoco Phillips (NYSE: COP) yields 3.8% where Dow component Chevron (NYSE: CVX) is yielding 3.1%. There are endless ways to play the Dow dividends, even if you only use them as a starting point for dividend ideas.


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    Where Albert Einstein Would Invest Today...
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    For more information and archived issues, visit http://www.globalprofitsalert.com

    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

    Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

    This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com.

    Nov 02 9:46 AM | Link | Comment!
  • Wednesday’s Capitol Hill Charade
    Watch enough C-SPAN or attend enough congressional hearings in person and you'll quickly realize one thing: Most are an egregious waste of time and by virtue taxpayer dollars. When I was a young reporter, I had the privilege of covering some of the Enron hearings on Capitol Hill. Perhaps it was because I was so young at the time, but I came away from those hearings thinking surely no financial fraud resulting from complex, shadowy financial instruments would ever be perpetrated again in the U.S.

    Nearly a decade later, I realize youth was not my folly, it was the accompanying naïve nature. Now I'm too wise to expect anything more than a waste of time when a Senate Banking subcommittee explores ETFs and their impact on financial markets Wednesday in our nation's capitol.

    Of course, Wednesday's hearing will feature the requisite industry luminaries. Noel Archard, managing director at iShares, the world's largest ETF issuer, will be in the house. Eileen Rominger of the SEC and Eric Noll, vice president of transaction services for Nasdaq will also be there. Harold Bradley, chief investment officer of the now-infamous Kauffman Foundation, will also give testimony.

    In my opinion, the presence of anyone from the Kauffman Foundation discredits this entire charade. It was Kauffman that issued a scathing, yet ill-informed report on ETFs last November, which among other ideas, suggested that small-cap companies be allowed to chose to be a part of a particular ETF. If you're the CEO of a small-cap public company that is starved for decent average daily trading volume, arguably you want your stock included in as many ETFs as possible so investors start seeing your company name on the roster of holdings on an ETF issuer's Web site. It's free advertising, but Kauffman takes issue with this.

    Oh yeah, Kauffman has deep ties to the mutual fund industry so it is in their best interest to see ETFs fail, not flourish. In other words, savvy investors should be convinced the Kauffman Foundation is not the best of witnesses for this particular hearing. Not surprisingly, the subcommittee will likely spend the bulk of its time probing leveraged and inverse ETFs. After all, these are the little devils of the financial world. Please sense my sarcasm. Someone on the committee staff should have asked this question: How much in assets do leveraged and inverse ETFs represent in the ETF universe?

    Well, not much. If we COMBINE the assets under management at the end of September for ProShares and Direxion, the two largest issuers of inverse and leveraged ETFs, we get $32.74 billion and that's slightly skewed because ProShares sponsors some ETFs that aren't leveraged or inverse. That number isn't much in the world of ETFs. Comparatively speaking, the SPDR Gold Shares has more than double the AUM ($66.4 billion as of Oct. 17) than ProShares and Direxion combined!

    Normally, I would have entitled a piece like this “How To Profit From...” However, I don't see any profitable opportunities coming up Wednesday on the Hill and that's just par for the course.

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    Here's why you don't have to worry about the "fine print" anymore...
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    Remember, although ETFs combine the best of both worlds of stocks and mutual funds – they can act totally different from each in real life.
    Those differences are usually spelled out in the "fine print" of the ETF's prospectus.
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    For more information and archived issues, visit http://www.globalprofitsalert.com

    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

    Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

    This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com

    Nov 02 9:41 AM | Link | Comment!
  • A Modern Day Greek Tragedy
    The G-20 meeting took place this past weekend and they have proposed that the solution has to be completed by next Friday. They also have announced that they have compiled a list of 50 major European banks that will probably have to be recapitalized.

    The politicians believe that the banks will be able to raise some capital privately in conjunction with the European Financial Stability Facility (EFSF). This is interesting because I'm not sure that the market participants are going to want to jump into the banks at this time. Some market participants might be saying to themselves "Fool me once, shame on Greece. Fool me twice, shame on me."

    The problem is that Greece is broke. They have no significant revenue sources to pay off their debt. Meanwhile, foreign investors own about $400 billion of Greek government debt.

    It is becoming more and more obvious that the entire financial system is coming apart at some level. Whether or not it completely meltdown is yet to be seen. While everyone's talking about the potential of a Greek default, it seems to be obvious that they have already defaulted; just no one is willing to admit it. It was the same situation back in 2008 with the US banks. They had defaulted but no one wanted to admit it until they had to.

    It appears that the politicians and the central banks believe somehow that if you quarantine the Greek debt, then it is possible to contain the contagion. The problem is that all of the other countries in the periphery are also bankrupt. So discussions such as 50 to 60% haircuts are being discussed for Greek debt is an attempt to quarantine the situation. Meanwhile, Italy, Portugal, Spain, and Ireland and maybe even the UK are falling into a default scenario.

    So the way it looks now, there are three things that would have to be accomplished. The first would be to cover all defaulting Greek government debt. The second would be to shore up the banks that don't qualify for intra-bank credit. The third is to make sure that Italy and the next countries in the periphery are safe and don't fail. The estimate to make this possible is around 3 trillion Euros.

    For now, market participants are continuing to be optimistic that all of this will work out. Remember Bear Stearns? I'm not sure how this will actually work out, but potentially there might be a solution that will keep the banks from failing. The bigger question is, "What are they going to do and what will be the stimulus for economies to grow again?"

    For me, this is the question that needs to be answered. The reality is that if you grow the economy, then you can pay off debt. The problem is there's no money to be lent to leverage and expand the economies.

    Looking back on last week's action in the market, we saw another sharply higher move in the market. I would like to point out that the S&P 500 index has rallied from 1074 on October 4 to 1224.50 on October 14th. This is 14% from the lows in 10 calendar days. This would suggest that the markets have moved into major resistance and are likely to stall in the next several days.

    On Friday, the markets were able to overcome resistance from the 1214 level and continued to move higher into the close. The positive tone was perpetuated by more buying in Europe and optimism that the European situation will be solved. The markets are becoming very overbought at this stage so there will be a reaction at some point in the next several sessions. This is why I continue to recommend extreme caution in the percentage of allocation to stocks.


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    For more information and archived issues, visit http://www.globalprofitsalert.com

    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

    Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

    This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com.
    Nov 02 9:36 AM | Link | Comment!
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