Dogs of the Dow 2010

AdamW · 01-01-2010, 08:32 AM

For those of you who follow (or care) here is what I found to be the Dogs of the Dow for 2010. Interesting new names include McDonalds. JNJ & PG were even close to making it on this year.

Price on 31-Dec/09 Yield on 31-Dec/09
T AT&T 28.03 5.85%
VZ Verizon 33.13 5.73%
DD DuPont 33.67 4.87%
KFT Kraft 27.18 4.27%
MRK Merck 36.54 4.16%
CVX Chevron 76.99 3.53%
MCD McDonald's 62.44 3.52%
PFE Pfizer 18.19 3.52%
HD Home Depot 28.93 3.11%
BA Boeing 54.13 3.10%

http://www.dogsofthedow.com/dogs2010.htm

Dr_V · 01-01-2010, 11:03 AM

In my view, none of the "Dogs" stocks are well-priced at the moment -- generally-speaking, they wouldn't pass even my initial stock screen.

This does bring up the point of: "What counts as well-priced?" For the benefit of some of the newer or less experienced forum readers, I thought I'd take a few minutes and describe what I mean. Space and time do not allow me to render this post entirely comprehensive; for that purpose, there are plenty of good discussions elsewhere on the internet and in printed form. In particular, I commend, to your attention, "The Intelligent Investor", 2nd ed., by Ben Graham.

For illustrative purposes, I'll present some of the key statistics that I employ for my initial stock screens. My stock selection process is iterative -- I widdle-down the entire market in steps, iteratively employing more stringent criteria.

The following data are from Reuters.

Code:

Symbol  P/Book(mrq)     P/TangBook(mrq) Debt/Equity(mrq)        CurrentRatio(mrq)       NetProfitMargin(5yr)    RoE(5yr)
T       1.66            n/a             72.98                   0.78                    10.74%                  10.66%
VZ      2.18            n/a             145.45                  0.81                    7.08                    13.72
DD      4.11            10.40           144.76                  1.61                    8.11                    24.77
KFT     1.60            n/a             82.49                   1.08                    7.09                    8.96
MRK     3.36            5.34            39.60                   3.70                    22.46                   29.46
CVX     1.70            1.80            11.63                   1.40                    8.22                    27.55
MCD     5.11            6.25            84.02                   1.02                    13.70                   19.75
PFE     2.22            5.20            59.49                   3.08                    19.01                   13.83
HD      2.54            2.70            53.79                   1.28                    5.94                    19.69

When I look at the Dogs table, above, I see a set of companies which has generally performed very well over a long period of time; the management has done a good job of turning income into return for investors, often with good profit margins. However, many of these companies are carrying an enormous amount of debt. Furthermore, these companies aren't trading anywhere near their book values (which is one of the strongest indicators of overpricedness in my opinion).

Of the common valuation metrics, I should point out that I put very little credence on the popular Price/Earnings and Price/Sales ratios, preferring instead to focus largely on Price/Book (in particular, price-to-tangible-book), debt and cash flow, current ratio, profit margin, and Return on Equity (ROE) during my initial stock screens. Ultimately, I *do* look at pretty much everything, but I find these criteria to be quite decent for weeding out questionable companies early on.

For my initial stock screening, I usually employ a set of modified "Graham Criteria", such as:

Code:

- P/B > 0.3 and P/B < 1.2
- ROE >= 8% continuously for several years
- Revenue > $100M/yr
- Net profit margin >= 5% continuously for several years
- Debt/equity <= 0.5, and preferrably Current Ratio >= 1.5

I like to look at a stock which has performed very well historically -- I want to see high profit margins and good ROE over a period of about 8-10 years. (I generally allow for 1 or 2 years of less-than-desirable returns out of every 10 years, to account for turn-around situations.)

A very important difference with my approach is that, when I compute book value (and look at assets on the balance sheet), I deduct the value of all goodwill -- effectively, I consider goodwill to be worth $0. In my experience, goodwill is often carried on the books at a higher value than it should be; with only a few exceptions, I give little credence to the strength of patents or brand names, which, being intangibles, are not guaranteed money-makers, and can often decrease in value during both recessions and booms. So, because I don't like surprise asset impairment charges, I discount goodwill before I become an owner in the company.

Consider, for example, the following data:

Code:

Symbol  Total Assets    Goodwill        Goodwill/Assets Ratio
T       $266.5B         $71.27B         26.7%
VZ      $226.4B         $22.19B         9.8%
DD      $36.2B          $2.1B           5.8%
KFT     $66.9B          $28.6B          42.7%
MRK     $48.7B          $1.4B           2.9%
CVX     $162.5B         $4.6B           2.8%
MCD     $30.0B          $2.4B           8.0%
PFE     $141.3B         $21.8B          15.4%
HD      $43.0B          $1.1B           2.5%

While not entirely accurate, an approximate way of thinking about this table is that the goodwill/assets ratio represents the portion of company's valuation owing primarily to its "brand name". (I prefer to invest in companies that succeed because of what they make, not what they call themselves.)

regards,
K.

ssimps · 01-01-2010, 12:23 PM

Is there a 'Dogs of the TSX?'?

AdamW · 01-01-2010, 01:51 PM

Quote:

Originally Posted by ssimps

Is there a 'Dogs of the TSX?'?

Yes, there is one, same concept. Highest 10 yielding stocks in the TSX at December 31st.

I'll see if I can dig those up over the weekend but if someone has them please post. I would think (trusts excluded) it would be heavy on the financials right now.

AdamW · 01-01-2010, 02:04 PM

I did a quick google search, i'll update the names later but this would the the canadian dogs as of mid-december.

As I thought, heavy on the financials.

Yield on Price on Price on Price
Company Ticker 31-Dec-08 31-Dec-08 16-Dec-09 Change
BIOVAIL CORP BVF 16.0 $11.54 $14.73 28%
BANK OF MONTREAL BMO 9.0 $31.25 $54.20 73%
NATL BK CANADA NA 7.9 $31.30 $60.74 94%
CAN IMPL BK COMM CM 6.8 $51.09 $68.66 34%
HUSKY ENERGY INC HSE 6.5 $30.87 $29.40 -5%
ENCANA CORP ECA 6.5 $30.24 $32.58 8%
BANK OF NOVA SCO BNS 5.9 $33.31 $48.50 46%
BCE INC BCE 5.8 $25.13 $26.38 5%
TORONTO-DOM BANK TD 5.6 $43.45 $64.91 49%
ROYAL BANK OF CA RY 5.5 $36.10 $55.26 53%

humble_pie · 01-01-2010, 03:18 PM

up 94% ?
up 73% ?
these are dogs ?

also ... something wrong with some of those yields.

also ... encana split, the other half is cenovus, together = a substantial 2009 appreciation.

AdamW · 01-01-2010, 04:13 PM

Quote:

Originally Posted by humble_pie

also ... something wrong with some of those yields.

Like I said, I did a quick Google search on that one to post it faster. I think they might be using December 31st 2008 data for the yields.

Anyone who had the actual 31-Dec-2009 Dogs of the TSX list please post them!

ssimps · 01-01-2010, 05:49 PM

Quote:

Originally Posted by humble_pie

up 94% ?
up 73% ?
these are dogs ?

also ... something wrong with some of those yields.

also ... encana split, the other half is cenovus, together = a substantial 2009 appreciation.

This may also be showing just how crazy a year it has been; stocks up an incredible amount and yields still high on some of them; shows how high a yield some people are making when they bought some of these stocks when they were at super lows.

I agree that the specific stocks may not be the actual dogs, and would also like to know if someone finds a list of what the true dogs of the TSX are.

humble_pie · 01-01-2010, 06:58 PM

i belong to the artichoke school of investing. Soon as i come to a bad leaf i discard it. Couple defective leaves, and out goes the entire choke.

so i'd say that tsx list of dogs is a mizzuble vegetable that can't be trusted.

on anybody's dog list one might find MFC. Maybe X. And probbly a bunch of telcos - and they do have decent divs - although telcos have started to move last few weeks.

scomac · 01-01-2010, 07:23 PM

Quote:

Originally Posted by AdamW

Anyone who had the actual 31-Dec-2009 Dogs of the TSX list please post them!

From 12/27/2009

High Yield TSX60 Stocks

BCE (BCE)
Telus (T)
CIBC (CM)
Bank of Montreal (BMO)
Transalta (TA)
Sun Life (SLF)
TransCanada (TRP)
National Bank of Canada (NA)
Husky Energy (HSE)
Bank of Nova Scotia (BNS)

01-01-2010, 08:32 AM	#1
AdamW Member Join Date: Apr 2009 Location: Montreal, Quebec Posts: 42	Dogs of the Dow 2010 For those of you who follow (or care) here is what I found to be the Dogs of the Dow for 2010. Interesting new names include McDonalds. JNJ & PG were even close to making it on this year. Price on 31-Dec/09 Yield on 31-Dec/09 T AT&T 28.03 5.85% VZ Verizon 33.13 5.73% DD DuPont 33.67 4.87% KFT Kraft 27.18 4.27% MRK Merck 36.54 4.16% CVX Chevron 76.99 3.53% MCD McDonald's 62.44 3.52% PFE Pfizer 18.19 3.52% HD Home Depot 28.93 3.11% BA Boeing 54.13 3.10% http://www.dogsofthedow.com/dogs2010.htm

01-01-2010, 11:03 AM	#2
Dr_V Senior Member Join Date: Oct 2009 Location: Waterloo, ON Posts: 214	In my view, none of the "Dogs" stocks are well-priced at the moment -- generally-speaking, they wouldn't pass even my initial stock screen. This does bring up the point of: "What counts as well-priced?" For the benefit of some of the newer or less experienced forum readers, I thought I'd take a few minutes and describe what I mean. Space and time do not allow me to render this post entirely comprehensive; for that purpose, there are plenty of good discussions elsewhere on the internet and in printed form. In particular, I commend, to your attention, "The Intelligent Investor", 2nd ed., by Ben Graham. For illustrative purposes, I'll present some of the key statistics that I employ for my initial stock screens. My stock selection process is iterative -- I widdle-down the entire market in steps, iteratively employing more stringent criteria. The following data are from Reuters. Code: Symbol P/Book(mrq) P/TangBook(mrq) Debt/Equity(mrq) CurrentRatio(mrq) NetProfitMargin(5yr) RoE(5yr) T 1.66 n/a 72.98 0.78 10.74% 10.66% VZ 2.18 n/a 145.45 0.81 7.08 13.72 DD 4.11 10.40 144.76 1.61 8.11 24.77 KFT 1.60 n/a 82.49 1.08 7.09 8.96 MRK 3.36 5.34 39.60 3.70 22.46 29.46 CVX 1.70 1.80 11.63 1.40 8.22 27.55 MCD 5.11 6.25 84.02 1.02 13.70 19.75 PFE 2.22 5.20 59.49 3.08 19.01 13.83 HD 2.54 2.70 53.79 1.28 5.94 19.69 When I look at the Dogs table, above, I see a set of companies which has generally performed very well over a long period of time; the management has done a good job of turning income into return for investors, often with good profit margins. However, many of these companies are carrying an enormous amount of debt. Furthermore, these companies aren't trading anywhere near their book values (which is one of the strongest indicators of overpricedness in my opinion). Of the common valuation metrics, I should point out that I put very little credence on the popular Price/Earnings and Price/Sales ratios, preferring instead to focus largely on Price/Book (in particular, price-to-tangible-book), debt and cash flow, current ratio, profit margin, and Return on Equity (ROE) during my initial stock screens. Ultimately, I do look at pretty much everything, but I find these criteria to be quite decent for weeding out questionable companies early on. For my initial stock screening, I usually employ a set of modified "Graham Criteria", such as: Code: - P/B > 0.3 and P/B < 1.2 - ROE >= 8% continuously for several years - Revenue > $100M/yr - Net profit margin >= 5% continuously for several years - Debt/equity <= 0.5, and preferrably Current Ratio >= 1.5 I like to look at a stock which has performed very well historically -- I want to see high profit margins and good ROE over a period of about 8-10 years. (I generally allow for 1 or 2 years of less-than-desirable returns out of every 10 years, to account for turn-around situations.) A very important difference with my approach is that, when I compute book value (and look at assets on the balance sheet), I deduct the value of all goodwill -- effectively, I consider goodwill to be worth $0. In my experience, goodwill is often carried on the books at a higher value than it should be; with only a few exceptions, I give little credence to the strength of patents or brand names, which, being intangibles, are not guaranteed money-makers, and can often decrease in value during both recessions and booms. So, because I don't like surprise asset impairment charges, I discount goodwill before I become an owner in the company. Consider, for example, the following data: Code: Symbol Total Assets Goodwill Goodwill/Assets Ratio T $266.5B $71.27B 26.7% VZ $226.4B $22.19B 9.8% DD $36.2B $2.1B 5.8% KFT $66.9B $28.6B 42.7% MRK $48.7B $1.4B 2.9% CVX $162.5B $4.6B 2.8% MCD $30.0B $2.4B 8.0% PFE $141.3B $21.8B 15.4% HD $43.0B $1.1B 2.5% While not entirely accurate, an approximate way of thinking about this table is that the goodwill/assets ratio represents the portion of company's valuation owing primarily to its "brand name". (I prefer to invest in companies that succeed because of what they make, not what they call themselves.) regards, K. Last edited by Dr_V; 01-01-2010 at 11:06 AM. Reason: gah, forgot to :set expandtab before I did the :retab in vi.

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01-01-2010, 12:23 PM	#3
ssimps Senior Member Join Date: Dec 2009 Posts: 382	Is there a 'Dogs of the TSX?'?

01-01-2010, 02:04 PM	#5
AdamW Member Join Date: Apr 2009 Location: Montreal, Quebec Posts: 42	I did a quick google search, i'll update the names later but this would the the canadian dogs as of mid-december. As I thought, heavy on the financials. Yield on Price on Price on Price Company Ticker 31-Dec-08 31-Dec-08 16-Dec-09 Change BIOVAIL CORP BVF 16.0 $11.54 $14.73 28% BANK OF MONTREAL BMO 9.0 $31.25 $54.20 73% NATL BK CANADA NA 7.9 $31.30 $60.74 94% CAN IMPL BK COMM CM 6.8 $51.09 $68.66 34% HUSKY ENERGY INC HSE 6.5 $30.87 $29.40 -5% ENCANA CORP ECA 6.5 $30.24 $32.58 8% BANK OF NOVA SCO BNS 5.9 $33.31 $48.50 46% BCE INC BCE 5.8 $25.13 $26.38 5% TORONTO-DOM BANK TD 5.6 $43.45 $64.91 49% ROYAL BANK OF CA RY 5.5 $36.10 $55.26 53%

01-01-2010, 03:18 PM	#6
humble_pie Senior Member Join Date: Jun 2009 Posts: 543	up 94% ? up 73% ? these are dogs ? also ... something wrong with some of those yields. also ... encana split, the other half is cenovus, together = a substantial 2009 appreciation.

01-01-2010, 06:58 PM	#9
humble_pie Senior Member Join Date: Jun 2009 Posts: 543	i belong to the artichoke school of investing. Soon as i come to a bad leaf i discard it. Couple defective leaves, and out goes the entire choke. so i'd say that tsx list of dogs is a mizzuble vegetable that can't be trusted. on anybody's dog list one might find MFC. Maybe X. And probbly a bunch of telcos - and they do have decent divs - although telcos have started to move last few weeks.