Is It Time To Get In On Blue Chip Dividend Plays?

Published Wed, 11 July 2012 09:00 CET by TopYields.nl


The blue chip Dow stocks led last falls rally, beating out the S&P 500 and the Nasdaq by several percentage points. The safety and dividends offered by the worlds largest companies were an attractive haven for investors growing wary of impending global slowdown. When comparing the major indexes by dividend yield, it is easy to see why the Dow performed better than its counterparts. 100% of the Dow stocks pay a dividend with an average yield of around 3% and a range of 1-5%. Of the S&P 500, about 81% of stocks pay dividends with an average yield near 2% and the dividend yields are even lower on the Nasdaq.

Average Dividend Yield S&P 500 Table
This year is shaping up to be much like last, with concern over world growth and weak corporate outlooks weighing heavily on the markets. Reduced earnings and diminishing expectations of accelerated growth in the second half give little reason for the general markets to move higher. With little expectations for a second half bull market, dividends will emerge as an important factor for investors. Is now the time to get in?

Alcoa (NYSE: AA), often viewed as an economic bell-weather, kicked off the second quarter earnings season earlier this week. The company reported an 81% drop in earnings over the previous quarter, beating the streets estimates but yet still stunning investors. The stock dropped about 3% following the announcement and could continue its decline. The company stated that falling aluminum prices, over supply and a rapidly slowing world economy, especially in China, will curb revenue and profitability in the second half.

Alcoa Stock Price Chart
The stock is approaching the lows it set following the 2008 market sell-off. The stock has lost over 46% in the last year and 2.5% in the year-to-date period but still has another 40% fall from the current level before reaching that point. Will it fall that far? No, probably not. The bearish momentum in the stock is declining and it is oversold, trading near a more recent support zone. The stock currently yields about 1.4% and could increase to over 2% should Alcoa continue down to its long term support.

McDonald's (NYSE: MCD) is another Dow dividend play that has benefited from a weakening global outlook. The stock has moved down over 10% for the year based on slowing sales growth and weak global outlook. The company has been able to sustain growth this year in line with expectations. Global comparable sales, which fell from 7.5% in April to 3.5% in May and June, remain positive and at a rate comparable to last years average of 5.5%. The company has reported sales growth in the US, Asia and Europe with Asia lagging at 1.7%. Unfortunately for the share price, McDonald's could be suffering from misplaced bearishness because the company has a proven track record of growth and dividend increases. Alcoa, whose dividend has increased due to lower stock prices, has not increased its dividend since 2002.

McDonald's Stock Price Chart
McDonald's is scheduled to release second quarter earnings July 23 and could surprise the markets. The current expectations are for earnings per share in the range of $1.38, compared to an actual EPS for the same period last year of $1.35 and the previous quarter this year of $1.23. The stock is currently trading under resistance and could move lower on global economic news prior to the release. At the current level, near $90, the stock yields around 3.1%, a number that could increase to as much as 3.5% if the stock moves down to it's next support zone around $80.

The blue chips as a whole are a good place for dividend returns, but not all are equal. Investors should not focus too heavily on individual quarterly earnings but should look to long term trends in revenue and earnings for clues. Sustained growth of revenues and earnings trump cyclical growth and fit better in long term investment strategies. Alcoa will surely bounce back when the world economy turns, but when that will be is still in question. McDonald's is head and shoulders above Alcoa in this light and makes a better long term dividend investment. Waiting until after earnings season could be a prudent move and could provide a better yield.


Stock name Dividend Yield
Mcdonalds 2.94
Alcoa 0.00

Articles featuring Mcdonalds (MCD):

A Dividend Portfolio Built From The World's Best Dividend ETFs

Since my first article using the pseudonym ETF Monkey was published on Seeking Alpha on June 3, 2015, my main focus has been to demonstrate that it is possible for almost anyone to harness the power of ETFs to build low-cost, diversified portfolios that allow them to access the power of financial markets without incurring hefty, ongoing fees for financial "advice." At the same time, I have read many great articles both here and on other sites with respect to building great... Read more

S&P Aristocrat Dog 'Safe' Yields For February Piloted By AbbVie, Chevron, And Target

The Dividend Dogs Rule The "dog" moniker was earned by stocks exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More specifically, these are, in fact, best called, "underdogs", even if they are "Aristocrats." Which Sectors Show Up As "Safe" For The... Read more

Free Market Capitalist January Dividend Income

Introduction January saw the markets continuing to creep higher on increased optimism for better times ahead. The Dow Jones Industrial Average broke the 20,100 barrier for the first time ever on January 26th, then to have a small pull back to end the month. The Dow Jones ended the month at 19,864.09. The S&P 500 and NASDAQ posted nice gains also. We are believers that this market will stay strong and march higher this year. Pro business growth policies that are in the works will bring... Read more

3 Great Dividend Stocks To Optimize Income Going Ex-Dividend Very Soon

Timing the market is difficult. Timing to maximize income from dividends, however, is much simpler. While buying a stock before it goes ex-dividend should in theory not change your total return, it still allows you to maximize how fast you get back real money from your investments without selling anything. This week, precisely on February 24, and next week on February 27 and March 1, three great long-term dividend stocks with a yield between 2.7 to 3.0% go ex-dividend. I personally own all of... Read more

Top 10 Net Payout Yields For February 2017

This article is a continuation of a monthly series, highlighting the top net payout yield (NPY) stocks, that was started back in June 2012 (see article) and explained in August 2012 (see article). The series highlights the best stocks for the upcoming month utilized in part to make investment decisions for the Covestor model that is now beating the S&P 500 for five out of the last six years. Please review the original articles for more information on the NPY concept. January Returns... Read more