The highest dividend yields of the Dow

CNBC came out this morning with a sorted list of the highest dividend yields of the Dow 30 stocks – from highest to lowest. Here’s my quick take on all of the dividend-paying stocks in the Dow yielding 2% or more (the stars represent’s star ranking system – three stars are five years of consecutive dividend increases, four stars are ten, and five stars are 20):

Alcoa [[AA]] (0 stars) – The shares of this aluminum producer have been hammered down to a point where they’re currently offering the highest yield in the Dow, at almost 11%. With estimated worst-case earnings showing a loss for 2009, it’s difficult to assign a value to the stock. But it’s not difficult to predict that a dividend cut may be likely. I’m staying away.

E I du Pont de Nemours and Co. [[DD]] (0 stars) – With a dividend yield at over 9%, the shares of this diversified chemicals company appear somewhat undervalued here at about $18 per share. The stock looks like it could go lower ($15 appears to be the next support). Between that and a dividend payout ratio of 75% and likely rising – suggesting risk to the dividend – I’m staying away.

Caterpillar [[CAT]] (****) – Yielding almost 7%, the shares of this manufacturer of earth-moving machinery and agricultural equipment have been clobbered with the market, and by some measures are undervalued here (about $25-$26). However, conservatively using the low end of estimated 2009 earnings yields a calculated fair value in the upper teens. That and the company’s apparently fairly high debt load are enough to keep me away for now.

AT&T [[T]] (0 stars) – Also yielding almost 7%, the shares of this telecom services provider appears to be fairly or somewhat undervalued at current levels (about $23). There appears to be long-term support at the $20-$22 level, and below that at the $16-$18 level. I currently have a short put options position in this stock that may ultimately end up with me being put the shares for a net cost basis of below $20 a share.

Verizon Communications [[VZ]] (0 stars) – VZ here (at about $28 and yielding 6.4%) appears to be fairly to slightly overvalued. A test of its ’02 lows would bring it back down to the low $20s. According to BusinessWeek, the company is very committed to its dividend – something I hadn’t known when I chose to initiate a position in AT&T instead. I’m keeping an eye on this telecom services provider and might look to initiate a position at lower prices.

Merck [[MRK]] (0 stars) – Merck’s shares seem fairly to somewhat undervalued here at about $23 and with a dividend yield of 6.3%. Given the lack of a strong dividend growth record and the fact that I’m actively watching other companies in the pharmeceutical sector, I’m passing on it for now.

American Express [[AXP]] (***) – Trading at about $12 and with a dividend yield of 6%, the shares of this credit card services company appear significantly undervalued. Technically they’re trading at the bottom of their 36-year uptrend channel. Of course, this company has all sorts of issues related to the financial crisis, which also brings up the possibility of a dividend cut. I’m still tempted, but am staying away for now.

Boeing [[BA]] (***) – Trading at about $30 and with a dividend yield of 5.60%, the shares of this aerospace/defense firm appear to be undervalued here. Strong downside momentum suggests risk of further decline. A retest of the ’03 lows would bring the stock price down to the low to mid $20s. If it weren’t for the stock’s negative book value, I’d probably be looking at this one a lot more closely.

General Electric [[GE]] (0 stars) – Reflecting a recent dividend cut of almost 70%, the shares of this diversified industrial conglomerate are effectively yielding about 5.7% at their current price of about $7. They appear to be undervalued, but remain under pressure due to concerns about the company’s financial unit. If I didn’t already have a position in the stock I might be tempted to initiate one, but I think there are probably a lot of other more attractive opportunities. (See my full take on General Electric.)

Kraft [[KFT]] (***) – Trading at about $22 with a dividend yield of about 5.3%, the shares of this packaged foods products company appear about fairly to somewhat undervalued here. I might take another look if the price falls into the teens.

Pfizer [[PFE]] (0 stars) – This large pharmaceutical firm recently halved their dividend to help finance their acquisition of Wyeth, and the stock now trading at $12.5 yields 5.2%. The stock appears undervalued, and if the company’s management can get its act together with the Wyeth merger, the stock price would appear to have significant total return potential at current levels. (Note: I have a position in PFE. Also, see my full take on Pfizer.)

Home Depot [[HD]] (0 stars) – The stock of this home improvement retailer currently yields 4.7% at its current trading price of $19 and appears relatively fairly valued based on conservative earnings estimates. I might get interested if it drops into the mid to low teens, but the relatively high payout ratio (67%) could be a sign of a vulnerable dividend.

Intel [[INTC]] (***) – By some measures the stock of this computer chip maker is undervalued here (at about $12 and yielding 4.6%), but by others – based on conservative earnings forecasts – it’s overvalued. The stock is currently trading at or below its ’02 lows, and if it doesn’t hold here looks like it could see single digits. I’m staying away for now.

3M Company [[MMM]] (*****) – Yielding 4.5% and trading at about $45, the shares of this diversified materials and technology company appear fairly to somewhat undervalued here. Recent strong downside price momentum suggests a risk of a further decline in the price. I’m getting close to pulling the trigger on this elite member of the Dividend Aristocrats. (For more, see my full take on the 3M Company.)

Chevron [[CVX]] (***) – Yielding 4.4%, the stock of this integrated energy company appears either fairly or – based on conservative earnings estimates – overvalued here (at about $59). The technical picture supports the latter, as CVX is still trading well above its long-term linear regression trendline (currently located at about the $43 level), suggesting – but not necessarily predicting – that it has plenty of room to correct on the downside. I’m staying away for now.

The Coca Cola Co. [[KO]] (*****) – Trading at about $40 and yielding a little over 4%, the shares of this soft drinks company appear about fairly valued. A retest of the stock’s ’03 lows would bring the share price down to the mid to low $30s, at which point I might become more interested.

United Technologies Group [[UTX]] (****) – At about $39 and yielding 4%, the shares of this aerospace/technology conglomerate are just now back down to their long-term linear regression uptrend line after trading well above it for five years, suggesting there’s more room on the downside. By some valuation measures UTX is currently undervalued, while others are suggesting otherwise. A retest of its ’03 lows would bring the share price down to the mid $20s, at which point I would most certainly be interested.

Johnson & Johnson [[JNJ]] (*****) – After trading well above their long-term linear regression trend line since crossing above it in 2002, the shares of this healthcare product manufacturer are finally coming down. Still, at about $49 and yielding 3.7%, they’re only just now trading a bit below that long-term trendline. This is consistent with the valuation measures which suggest the stock is roughly fairly valued here. I’ll start becoming very interested in this Dividend Aristocrat if/when it reaches $45 (its ’03 lows) or below. (See my full take on Johnson & Johnson.)

McDonald’s Corp. [[MCD]] (*****) – Wow. At $53 and a dividend yield of 3.8%, the shares of this fast-food restaurant operator appear about fairly valued based on one measure (last year’s and projected earnings), but significantly overvalued when compared to recent historical valuation ratios and from the long-term price chart. Currently MCD’s long-term uptrend line is at about $35 – a full 34% below the stock’s current price. Sooner or later the stock price and the linear regression trend line will meet up again, whether through the stock price coming down, or through time as the stock goes flat and the trendline eventually rises to meet it. I’ll pass on this one for now.

Procter & Gamble [[PG]] (*****) – The stock of this consumer products maker has, until recently, been trading well above its long-term linear regression trendline, making it relatively unattractive from my perspective (see my full take on Procter & Gamble). Now trading at about $47 and with a dividend yield of 3.4%, its sitting on its long-term uptrend line and – not coincidentally – appears roughly fairly valued. I’ll start to get interested below $45 and would prefer to initiate a position below $40.

Microsoft [[MSFT]] (0 stars) – At about $16 each and yielding 3.2%, shares of this software technology company appear clearly undervalued here, with a calculated fair value somewhere in the low $20s. The company has been raising its dividend for the last several years, but as yet hasn’t emphatically committed to growing it regularly. There appears to be some long-term price support at the $13-$15 level. (Note: I have a position in MSFT. For more, see my full take on Microsoft.)

Exxon Mobil Corp. [[XOM]] (*****) – At about $66 and yielding 2.5%, the shares of this integrated oil and gas producer appear anywhere from fairly valued to overvalued. With the shares trading well above their long-term linear regression trendline (at about $50), this doesn’t suggest a bargain to me. I’m staying away for now.

IBM [[IBM]] (***) – The shares of this information technology products and services company are yielding 2.2% at their current price of about $90. Valuation and technical measures suggest the stock is about fairly valued here. A retest of its ’02 lows would bring the share price down to the $50 level. I’m staying away for now.

The Walt Disney Co. [[DIS]] (0 stars) – Trading at about $17 and with a dividend yield of 2.10%, the shares of this diversified entertainment company appear undervalued here. A retest of their ’02 lows would bring them down to the $14 level or so. Below that, the ’93-’94 lows at about $12 might offer support. I’d be a lot more interested in DIS – which otherwise is beginning to look attractive – if it had a more distinguished dividend history. I may still bite if it revisits those lower support levels.

Wal-Mart Stores [[WMT]] (*****) – I’ve been in and out of shares of WMT several times over the last few years and am waiting for another good opportunity to get back in. Currently trading at about $49 and yielding 2%, the shares appear about fairly valued, and are basically sitting on their long-term linear-regression trendline. A move back into the $30s would probably entice me in.

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