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A Look at the Ten Highest-Yielding Dow Stocks

By JLP | January 6, 2008

Take a wild guess what the highest-yielding Dow stock was at the end of 2007. Any guesses?

It was…

Citigroup (C) with a yield of 7.34%!

On December 31, 2007, Citigroup was trading at $29.44 and had paid out $2.16 in dividends during 2007, giving it a yield of 7.34%. Now, it’s important to note that Citigroup’s dividend may be slashed, which would also slash its yield. Although companies don’t like to cut their dividend payouts, there are times when they must do so in order to boost their capital.

Here’s a look at the ten highest-yielding stocks in the Dow Jones Industrial average at the end of 2007:

10 Highest-Yielding Dow Stocks 2008

Although I’m not recommending it, a portfolio consisting of equal dollar amounts of each of the ten stocks in the list, could expect a portfolio yield of over 4%.

10 Highest-Yielding Dow Stocks 2008

What’s all the talk about yields?

In case you aren’t familiar, a yield is simply the annual dividend divided by the current price of the stock. For those of you who like graphics, the formula looks like this:

Dividend Yield Calculation

It doesn’t get much simpler than that. This calculation gives us a way to compare dividend-paying stocks with other income-paying investments like bonds and money market accounts.

What does a high dividend yield tell us?

A high dividend yield tells us:

1. The company pays a large dividend, or…

2. The company’s stock price is depressed.

In other words, it can sometimes be an indication of value. Some people have used this strategy (mostly known as the Dogs of the Dow) to find and invest in beaten-down stocks. I think the strategy has merit but I also think people need to be careful because as I mentioned earlier, if a company is in really bad shape, management could decide to slash the dividend, which would lower your yield. So, it’s not without risks.

Personally, I think I would rather utilize more diversification by investing in several good exchange-traded funds index mutual funds and add fixed income exchange-traded funds if I need income (more on that later).

Oh, and in case you were wondering, here are the yields for all the stocks in the Dow Jones Industrial Average:

Dow Jones Industrial Average Yields

Topics: Investing | 9 Comments »


9 Responses to “A Look at the Ten Highest-Yielding Dow Stocks”

  1. NCN Says:
    January 7th, 2008 at 6:12 am

    So, if I purchases an ETF comprised of the Dow stocks, like DIA, would it then produce the average yield of these 30 stocks?
    Also, I’ve noticed that when talking about stuff like this, many commentators mention that the yield helps a stock from going “too low”. In other words, as the yield goes up, more folks invest, thus creating a floor for the stock price. Make sense?
    Great post… I’m linking…
    NCN

  2. JimmyDaGeek Says:
    January 7th, 2008 at 10:25 am

    The “Dogs of the Dow” strategy is meant to be a mechanical investing strategy where you simply apply a screen and invest according to the results. Trying to second-guess the strategy causes deviations to the results. For example, Altria (Phillip Morris) has been in the Dogs list for years. When I was using the strategy, I avoided it because of potential lawsuit losses. Yet, here it still is, putting out great results.

    Motley Fool did an analysis years ago and found that while it could produce a small gain relative to a buy and hold of the Dow index, the trading costs and potential tax liabilities made it not worth the effort.

    You can find out more here: http://dogsofthedow.com/

  3. JLP Says:
    January 7th, 2008 at 10:36 am

    NCN,

    According to the Dow Diamond website, the current yield is 2.24%. This is because the ETF does not hold an equal weighting of each of the 30 stocks.

  4. Learning A Little Bit More About Dividends And Bonds Says:
    January 7th, 2008 at 4:01 pm

    [...] Recently, I’ve been thinking about dividends – what they are, how they work, how they are calculated, etc. Well, I fired up my newsreader today, and my good friend JLP from All Financial Matters has an excellent article about dividends and the Dow 30. [...]

  5. fran kent Says:
    January 8th, 2008 at 12:19 pm

    List of DJ Dividends neglected to include BAC. Or did I miss something?

  6. JLP Says:
    January 8th, 2008 at 12:40 pm

    Fran Kent,

    BAC isn’t a component in the Dow Jones Industrial Average.

  7. A Stroll Through My Blogroll Says:
    January 8th, 2008 at 9:32 pm

    [...] All Financial Matters writes about the 10 highest-yielding stocks of the Dow. [...]

  8. » Midweek Roundup: Welcome Consumerist Readers on Consumerism Commentary: A Personal Finance Blog Says:
    January 8th, 2008 at 10:21 pm

    [...] A Look at the Ten Highest-Yielding Dow Stocks from AllFinancialMatters. JLP reveals CitiGroup as the highest yielding Dow stock last year. Some of the top ten stocks appear in my mutual funds, but I don’t own any of those stocks outright. The two stocks that I own, MSFT and AKAM, did not do well last year. [...]

  9. Daily Links: Car Talk Edition ∞ Get Rich Slowly Says:
    January 9th, 2008 at 11:46 pm

    [...] Have you ever wondered what it means for a stock to pay a dividend? At All Financial Matters, JLP recently examined the ten highest-yielding Dow stocks. While this information is fun in a stats-geek sort of way, he also provided a quick crash course in dividend yields and what they can tell an investor. [...]

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