In Part 1 of this series we listed the oldest dividend paying stocks in the U.S. In this article, we'll try to sort out which ones have the best history of paying dividends, and, which ones might be healthy enough to actually invest in. Here are the members of this "Old Timer's Club":
LORILLARD - 1760 - Consumer Goods
BANK OF NY 1784 - Bank??
CIGNA - 1792 - Insurance??
WASHINGTON TRUST - 1800 - Community Bank??
DUPONT - 1802 - Industrial Diversified? Chemicals
COLGATE-PALMOLIVE - 1806 - Consumer Goods??
VALSPAR - 1806 - Industrial??
JOHN WILEY & SONS - 1807 - Publishing??
HARTFORD GROUP - 1810 - Insurance??
CITIGROUP - 1812 - Bank??
YORK WATER - 1816 - Utility??
So, which of these companies has the safest dividend? This is a question with many answers.
As we noted in the 1st article, York Water, (YORW), holds the record for consecutive dividends, having paid 553 consecutive dividends during the 193 years since it was founded in 1816. Their record is certainly impressive and offers some safety. Here's how they fare in their peers in the broad utility group:
Quick Ratio: .72 puts them in the top rung
Debt-to-Equity: Their 1.35 is the approximate median for this metric
Price-to-Book: At 2.4, their P/B is one of the highest in their group
Dividend Payout Ratio: 84%. Almost in the middle, but this figure ranges from 60 % to 236 % for this group.
Dividend Yield: 3.4% This is near the bottom for Utilities as a whole, as this broad group ranges from 3 % up to 8% +. However, looking at the narrower, water utility group shows a much narrower range, of 3 to 5%, with most companies being around 3%.
All told, YORW is a steady dividend payer that could add stability to your portfolio, particularly if the dividends are reinvested.
Dupont Nemours, (DD), has certainly had a wild ride in the past year, ranging from a high of .03 to .81. It's currently at .60 and yields over 6.7%. Here's a look at some other metrics:
Dividend Payout Ratio: 114%. Payout ratios this high are usually a warning signal, but, looking further, we see that DuPont's EPS forecast for 2010 is .05, which, if correct, would bring their payout ratio back down to 80%, which is still higher than the bottom third of the diversified chemical group, but much better than the top third.
Quick Ratio: 1.26 is the 2nd highest in their peer group.
Current Ratio: 1.87 is near the middle of their group.
Dupont's Price/Cash and Price/Book are currently both a bit on the high side, so, you may want to either wait for a pullback, or, try selling puts to get a cheaper price.
October .50 puts, (DDVT), are currently bid at .25, which equaling a 20%-plus annualized yield, and a breakeven of .25.
Alternatively, you might try hedging your bet by buying shares and then selling .00 January 2010 calls, (DDAE), which currently show a .30 bid, which equals an 18% annualized yield.
In addition, you'd receive $ .82/share in dividends during this period, as there are 2 ex-dividend dates before the call option expires.
Adding in this dividend payout brings this covered call trade's "static" yield to 24.4% annualized, and gives you a .48 breakeven.
Since your basis is .60, and the call strike price is .00, you'll have one other potential profit on this covered call: If the stock's price rises to or past .30 at or near the Jan. expiration date, your shares will be assigned, (sold), at .00, the strike price, giving you an additional $ .40/share in profit.
This potential assigned profit brings your total potential profit up to .52/share for this 6-month + trade, (over 27.5 % annualized).
In part 3 of this series, we'll look at more of America's oldest dividend paying stocks, and try to ferret out some more possible trades.
Disclaimer: This article is written for informational purposes only, and author will not be held responsible for omissions or errors, or for acts taken by third parties as a result of reading this article.