Dow 'Dirty Dozen' Offers High Yields and Good Value

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Includes: BAC, C, CNP, DIA, DUK, ED, GE, GM, IDU, IYJ, IYT, NI, PFE, SO, T, VZ
by: J Clinton Hill

Michael O’Higgins brought us the "Dogs of the Dow" strategy which he featured in his 1992 book, Beating the Dow. The basic premise of the strategy is selecting blue chip stocks which are out of favor but have a history of stable dividend policies and the ability to survive the troughs of any economic business cycle. For patient investors, the strategy has been profitable and able to outperform the Dow the majority of the time.

As a spin off and effort to broaden the number of blue chip candidates for screening, Hillbent combines the 30 Dow Industrials, 20 Dow Transportation, and 15 Dow Utility stocks to come up with the "Dirty Dozen". This group represents the 12 highest dividend yielding stocks amongst the Dow Jones 65 composite index.

It should come as no surprise that auto manufacturing and financials represent the 3 highest yielding stocks. GM’s (NYSE:GM) gut wrenching restructuring decisions will posiiton it be a dominant player in the global and emerging markets. Note that the American market is just a battle while the global and emerging markets represent the war.  Bank of America (NYSE:BAC) and Citigroup (NYSE:C) may still be vulnerable to further writedowns but will also grow market share from less industry competition. Pfizer (NYSE:PFE) struggles with a dwindling drug pipeline and patent expirations and has prioritized a strategic acquisition or joint partnership in order to maintain its competitive edge. Defensive stocks like Telecom (AT&T (NYSE:T) and Verizon (NYSE:VZ) and Utility (Consolidated Edison (NYSE:ED), NiSource (NYSE:NI), Duke Energy (NYSE:DUK), The Southern Company (NYSE:SO), CenterPoint (NYSE:CNP)) companies generate sufficient cash flow and maintain fairly low payout ratios to make them a safe bet for shelter in just about any economic storm. Last but not least, is the mighty conglomerate GE which also has a conservative payout ratio and stands to benefit from global infrastructure development and a weaker dollar.

Collectively, the group averages a 5.88% yield, and while it lacks broad enough industry diversification to comprise an entire portfolio, a basket of these stocks could serve as a core holding for conservative to moderate investors and absorb the shocks of the rough and bumpy bear market trail upon which market participants now must travel.

 

Company Ticker Last Div Yld Payout Ratio
General Motors GM 10.07 9.67 N/A
Bank Of America BAC 31.03 8.15 1.38
Citigroup Inc C 18.87 6.71 N/A
Pfizer Inc PFE 19.26 6.64 0.57
Consol. Edison ED 41.39 5.63 0.73
NiSource Inc NI 16.62 5.50 0.71
Duke Energy
DUK 17.70 5.16 0.64
AT&T Inc T 32.75 4.96 0.55
Verizon Comm. VZ 35.82 4.85 0.68
CenterPoint Energy CNP 15.97 4.52 0.58
Southern Company SO 37.86 4.42 0.71
General Electric GE 28.68 4.30 0.57
         
Average   25.50 5.88 0.71

 

Disclosures: Hillbent nor any of its affiates maintains a long or short position in any of the above mentioned securities and nor does it not receive any form of compensation as a result of an investment banking or any other type of professional or informal relationship.

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