The Dow Jones Industrial Average recently moved to its highest level ever and is up 18% year to date. The Dow also had a makeover that saw three new stocks join the index—Nike (NKE), Goldman Sachs (GS), and
From a dividend reinvestment plan (DRIP) perspective, the Dow is a fertile hunting ground for DRIP investors:
➤ All 30 Dow stocks pay a dividend, and 23 of the Dow stocks have yields of 2% or greater.
➤ 22 Dow stocks offer direct-purchase plans whereby any investor may buy the first share and every share of stock directly. Dow stocks with direct-purchase plans are highlighted in the table.
➤ Five Dow stocks—Boeing (BA), DuPont (DD), Johnson & Johnson (JNJ), 3M (MMM), and Travelers (TRV)—offer traditional DRIPs whereby investors must already be a shareholder of record in order to enroll in the plan.
➤ Only three Dow stocks do not offer a direct-purchase plan or a traditional DRIP—Goldman Sachs, UnitedHealth Group (UNH) and Visa. Curiously, these three stocks are among the newest members of the Dow, with Goldman Sachs an Visa coming onboard this year and UnitedHealth Group joining the Dow in September, 2012. (The remaining new member—Nike—has a direct- purchase plan.)
From an investment perspective, Dow stocks as a group have decent investment appeal. Indeed, 77% of the 30 Dow stocks sport Quadrix Overall scores that place them in the top half of DRIP Investor's 4,000-plus Quadrix stock universe.
I currently have 12 favorites. Some of these stocks, such as Exxon Mobil (XOM), represent excellent “buy-and- hold” plays. While Exxon may not be the most dynamic stock over the next 12 months, the issue is the type of “Steady Eddie” play that works nicely in a DRIP portfolio.
I have owned Exxon for more than 20 years, and the stock has been a perfect holding in many ways. Exxon rarely forces investors to make a decision, and its “easy hold” characteristics have allowed me to hold and reap ample gains. Exxon has a 2.8% yield and offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Minimum initial investment is $250.
The other energy play in the Dow, Chevron (CVX), fits the “Steady Eddie” description as well and should be a productive investment over the long term. Chevron has a yield of 3.2% and its direct-purchase plan has a minimum initial investment of $250.
Another stock I like for its “Steady Eddie” characteristics and long-term growth appeal is Disney (DIS). Admittedly, Disney’s current Quadrix Overall score of 60 is a bit on the low end for recommended stocks. However, I’m willing to break my rule a bit for Disney.
I like the company’s diversified operating base, which includes theme parks, broadcasting (ABC, ESPN), and movie operations. Entertainment, travel and media are among my favorite sectors, and Disney provides exposure to all three. The stock is suitable for any DRIP investor and is especially appropriate for a child or grandchild who is being introduced to investing via DRIPs. Minimum initial investment in Disney’s direct-purchase plan is $250 and the stock has a yield of 1.2%.
Two of my favorite Dow stocks for the next 12 months are Cisco Systems (CSCO) and J.P. Morgan Chase (JPM). Cisco and J.P. Morgan are fairly controversial stocks right now. J.P. Morgan is always in the headlines for some investigation or lawsuit.
However, I remain a fan of company management and the firm’s ability to crank out big profits and dividends. The yield of nearly 3% enhances appeal. J.P.Morgan has perhaps the most impressive set of Quadrix scores of any Dow stock, with the stock having an Overall score of 94 (out of a possible 100), a Value score of 96, and a Quality score of 73. Such broad Quadrix strength should translate into above-market returns over the next year. J.P. Morgan’s direct-purchase plan permits minimum initial investment of $250.
Cisco stock fell following its most recent earnings announcement. Quite frankly, I didn’t think the quarterly results were bad. That Cisco was a bit dour during the conference call probably stemmed as much from the fact that the company didn’t want to come off as being ebullient given it was laying off 4,000 employees.The yield of 2.8% boosts total-return potential. Cisco offers a direct-purchase plan. Minimum initial investment is $500.
As for the newest entrants to the Dow, I think all three have merit from an investment standpoint. My favorite is Visa. The company tends to be miscast as a credit play. Actually, Visa does not issue credit cards nor extend credit. Rather, it is a technology company, taking a piece of credit and debit payments it facilitates across its network. And while that fee is very small per transaction, the number of transactions that run through its system is staggering. In the June quarter alone, total processed transactions were 15 billion.
I think the stock is an excellent growth play and a solid buy. The only fly in the ointment is that Visa doesn’t offer a DRIP or direct-purchase plan, so the only way to purchase the shares is via a broker.
American Express, (AXP), Goldman Sachs, Nike, Procter & Gamble (PG), Travelers and United Technologies (UTX) round out my favorites.
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Charles B. Carlson, CFA is editor of DRIP Investor and CEO of Horizon Publishing.
Excerpted from October issue of DRIP Investor.
