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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s.
My book:
A Modern Approach to Graham and Dodd Investing
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  • Pairing Dogs Of The Dow, 2015 Edition

    Since I am now publishing again, I will go back to an old theme, of pushing the investment strategy of the 10 "Dogs of the Dow," and then trying to select within theme, by pairing them, and choosing the more attractive one in each pair, based on present and past dividend yields. (Yields as of December 26, 2014 follow the stock ticker symbols in parentheses.)

    Given two large, blue chip companies in the same industry whose stocks have rather different yields, the more attractive stock is often the higher yielding one. In our list, there is one exception, where the lower-yielding stock is offering a much higher yield than it typically does. This strategy reduces the portfolio to five "Dogs" that hopefully will outperform the "Dogs" Strategy itself, while we believe that the ten "Dogs" will outperform the overall Dow.

    A T& T (NYSE:T), 5.38% vs. Verizon (NYSE:VZ), 4.60%: These are both telecom stocks, and historically, their yields have been pretty close together. A T& T's yield is now more than three-quarters of a point "wide" of Verizon, which is too much. The choice is A T &T.

    Chevron (NYSE:CVX), 3.78% vs. ExxonMobil (NYSE:XOM), 2.96%: These are two global "blue chip" energy producers. ExxonMobil is the safest company around, but Chevron is right behind it in this regard. Even so, the yield on Chevron stock is more than three quarters of a percentage point higher. That's a large "handicap" given their similarities. Dividend yields and "total return" are key in "tortoise vs. hare" races involving large energy companies, so Chevron is the clear choice.

    Coca Cola(NYSE:KO) 2.84% vs. McDonald's (NYSE:MCD), 3.59%: These are both prime consumer stocks. Historically, Coca Cola stock has been the higher quality issue, and therefore the better choice when the two yields were about the same, but McDonald's yield is "too much" higher than Coke's.

    Merck (NYSE:MRK), 3.12% vs. Pfizer (NYSE:PFE), 3.54%: This is a bit closer than the some of the other comparisons, but again, the two trade typically trade "tighter" than they do now. Also, Merck is at the high end of its ten-year range; this is less true for Pfizer, meaning that the latter, higher-yielding issue, is the greater value.

    Caterpillar (NYSE:CAT) 2.96% vs. General Electric (NYSE:GE), 3.41%: This is the exception to the rule of choosing the higher-yielding of two similar securities. They are both "industrial" companies, but Caterpillar seldom trades at a yield approaching 3.00%, while GE often trades "wider" than 3.50%. GE has the larger "captive" finance subsidiary (GE Financial), meaning that it has to yield much more to compensate for its greater exposure to the volatile financial industry.

    Our choices: A T&T (T), Caterpillar (CAT), Chevron (CVX), McDonald's (MCD), Pfizer (PFE).

    Dec 28 3:16 PM | Link | 1 Comment
  • Apple Has Become A Corporation

    In this I opined that a corporation was a company where a younger version of its founder would have a hard time getting a job.

    Before passing, Steve Jobs famously urged his employees to "Stay hungry, stay foolish."

    That is not the Apple of today. Tim Cook's company is one that probably would not hire a younger Steve Jobs. Thus, Apple has now become a corporation.

    Mar 11 11:43 AM | Link | 2 Comments
  • Why America Isn't Sharing in the Good Fortune of Corporate America
    The fortunes of corporate America have pretty much recovered from the 2008-09 crash. Profitability is close to 2007 peaks, and should cross that level sometime this year. Corporate cash balances, meanwhile, are at an all time high.

    But you wouldn't guess this from looking at what is happening the rest of America. Unemployment,while off its peak, is nowhere near 2007 levels. For stockholders, meanwhile, dividendshave lagged the rebound in profits, and may not challenge record levels.

    So who are the beneficiaries of the prosperity of American corporations if not Americans? A lot of it is taking place overseas, where American companies are finding new customers and hiring new workers. Capital is "trapped" outside our borders, as well, because of the prospect of heavy taxation. American corporations are flush with cash, but they are not spending it here in America.

    The U.S. government needs to do more to incentivize American companies to do more at home. A "tax holiday" on repatriation would help. So would the restoration of an investment tax credit. But the biggest boost to hiring, might be tax credits for new hires.
    Mar 31 1:29 PM | Link | 2 Comments
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