Investing

Dividends Galore: Meet the Preliminary 2016 Dogs of the Dow

Caterpillar

Caterpillar Inc. (NYSE: CAT) has not always been very high on the Dow totem pole for dividends, but its stock drop has been harsh for more than just 2015. Its yield is now listed as 4.73%, but that has been artificially juiced due to shares being down more than 26% so far in 2015. The problem here is that every commodity market remains under pressure, and every growth market is running at far less growth (or contraction). Caterpillar is a great company, but its sales are also suffering from the strong dollar.

Shares of Caterpillar closed Friday at $65.11. The consensus price target is $68.29, and the 52-week trading range is $62.99 to $94.66. It has a market cap of $38 billion. Looking ahead to 2016 earnings, Caterpillar’s forward P/E is 18.1 that might not sound cheap, considering the business cycle pressure.

IBM

Though it has raised its dividend and keeps buying back stock, International Business Machines Corp. (NYSE: IBM) is a Dogs of the Dow member due to poor performance. IBM shares were last seen down 13% so far in 2015 and its 3.85% dividend yield may not be enough to stave off declining core business concerns and lower backlogs. IBM just cannot grow its new efforts fast enough to make a huge dent.

Big Blue’s shares recently closed at $134.90, within a 52-week trading range of $131.65 to $176.30. The consensus price target is $148.05, and the company has a market cap of $131 billion. Looking ahead to 2016 earnings, IBM has what sounds and feels like a forward P/E ratio of about 9. Unfortunately, many investors have argued that this is a value trap rather than a value stock.

Runners-Up, a Coin Toss

24/7 Wall St. has to feature two companies here for the fifth Dogs of the Dow because their yields are so close together that it will be a coin toss over which one is in the top five yields. Pfizer Inc. (NYSE: PFE) is currently in a virtual tie with Exxon Mobil Corp. (NYSE: XOM): Pfizer is at 3.75% and Exxon is at 3.78%. What makes this even harder to judge is that Pfizer has just raised its dividend to $0.30 from $0.28 per share, and that is not payable until late in the first quarter. That being said, we will leave the verdict up to fate without declaring a winner.

Pfizer shares have been up just over 6% so far in 2015, with more than half of that coming from its dividend. The patent cliff has just killed Pfizer, but how this company is treated ahead during an effort for overseas acquisitions (and possible tax inversions) could ultimately threaten its position as a member of the 30 Dow stocks.

Pfizer shares closed Friday at $31.99, with a consensus price target of $40.44 and a 52-week range of $28.47 to $36.46. Its market cap is $197.5 billion. Looking ahead to 2016 earnings, Pfizer has a multiple of 13.6, compared to the current price.

Exxon Mobil has suffered from lower oil and gas prices, just like Chevron. Its yield is far lower than Chevron, but that is because Exxon is believed to have better dividend insulation while it has been buying back stock. Exxon shares were last seen down about 13.5% so far in 2015.

Shares of Exxon ended last week at $77.28. The consensus price target is $83.52 and the 52-week range is $66.55 to $95.18. The market cap is roughly $322 billion. Looking ahead to 2016 earnings, Exxon’s multiple is 20.8, compared to the current price.


Again, the actual Dogs of the Dow remain up for grabs. A lot can happen at year-end, and the same pressures that have been present for 2015 appear to be ongoing pressures for 2016. Low international market participation, a strong dollar hurting U.S. exports and the same global pressures weigh. Stay tuned.

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