FOOLISH FOUR PORTFOLIO

The Daily Dow
Monday, November 03, 1997
by Robert Sheard

LEXINGTON, KY. (Nov. 3, 1997) -- Any time the Beating the Dow (Foolish Four) rankings change, there's a little confusion about what happened to the stock that may have been in the rankings just the day before. So today I want to review both the process for making these rankings and the sources I use to calculate them.

The basic process starts by identifying the ten Dow stocks (out of the thirty in the Dow Jones Industrial Average) that currently sport the highest dividend yields. The dividend yield is the percentage return you will receive directly from the company in quarterly dividend payments throughout the next year, assuming the company's current dividend rate remains intact throughout the next year. To calculate the yield, you need to know what dividend the company currently pays each quarter (or if the company has announced officially a dividend change, what the new rate is to be), and then multiply that by four to get the annual dollar dividend.

For example, GENERAL MOTORS (NYSE: GM) currently pays 50 cents per share each quarter, so its annual dollar dividend is $2.00 per share. To calculate the percentage dividend yield, divide that annual dollar amount by the current price per share for the stock. If GM is trading at $66 a share (as it was on Friday), the dividend yield would be 2.00 / 66.00 = 0.0303 (or 3.03%). As you can see, the yield fluctuates slightly with every change in the stock price.

Once you have identified the ten stocks with the highest yields, re-rank those ten stocks in ascending order by stock price. The number one stock is the cheapest one and number ten is the stock with the highest price. This secondary ranking is where most new readers get confused. It's not unusual for a stock that's low among the group of high yielders to rank quite high on the low-price list. And if its price rises just enough to drop its yield out of the top ten, the stock suddenly disappears from the list altogether. This happened Friday when the #2 stock on our price list, SEARS (NYSE: S), slipped out of the top ten yielders and fell off the lists entirely. Don't let this seemingly bizarre turn of events throw you; it's actually pretty common. The first test is high yield. If a stock falls out of the top ten yielders, it doesn't matter what its price is, it's no longer in our group.

Another problem for investors is where to get the raw data for the yield. I've found problems with virtually every source available. AOL's yield figure is almost worthless because they truncate the yield figure. That is, if a yield is 1.61% or 1.69%, AOL lists it as 1.60%. It's not only a poor way to round off, but the fact that AOL lists that zero in the hundredths place suggests the yield is taken to more significant digits than it is.

Yahoo (www.yahoo.com) is a great source for the annual dollar dividend figure. They get new dividend announcements posted quickly, and in fact, this is now my primary source for dividend figures. Their yield figure, however, can be misleading because it uses the previous day's closing price, not the current price. If a stock makes a significant move one day, its yield figure that day can be quite a bit off.

What I do, then, is take the current dollar dividend figure from Yahoo each day and the current price quote from AOL's data feed, and then calculate the dividend yield myself every evening. That way I'm assured the best chance of getting accurate yields for all 30 Dow stocks every day. I calculate the yield to one hundredth of one percent (two places beyond the decimal), which eliminates almost all ties.

Every evening, I post a file on the AOL site that is then mirrored as quickly as possible on the website with the current top ten yielders, the current top ten in price order, and the full price, dividend, and yield information for all thirty stocks. So if you ever have questions about the rankings or want to check your own procedure against mine, please double check this file. I believe it's the most accurate daily source of yield information you'll find. Fool on!

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________


TODAY'S NUMBERS
Stock  Change   Last
--------------------
T    +  13/16  49.75
GM   +3  1/16  67.25
CHV  +3  3/4   86.69
MMM  +  11/16  92.19
           
                  Day   Month    Year
        FOOL-4   +2.67%   2.67%  22.72%
        DJIA     +3.12%   3.12%  19.01%
        S&P 500  +2.66%   2.66%  26.76%
        NASDAQ   +2.29%   2.29%  26.27%

    Rec'd   #  Security     In At       Now    Change
   1/2/97  153 Chevron       65.00     86.69    33.37%
   1/2/97  179 Gen. Motor    55.75     67.25    20.63%
   1/2/97  479 AT&T          41.75     49.75    19.16%
   1/2/97  120 3M            83.00     92.19    11.07%


    Rec'd   #  Security     In At     Value    Change
   1/2/97  479 AT&T       19998.25  23830.25  $3832.00
   1/2/97  153 Chevron     9945.00  13263.19  $3318.19
   1/2/97  179 Gen. Motor  9979.25  12037.75  $2058.50
   1/2/97  120 3M          9960.00  11062.50  $1102.50


                             CASH   $1167.51
                            TOTAL  $61361.20