3 Stingy Dow Stocks Holding Back Your Money

Investing in stocks is risky business. That's why it's always nice to find a company that makes a habit out of rewarding you for taking on that risk of ownership. The most common ways companies do this are through dividends and share repurchases.

But some companies can hide behind a veil of dividends and appear more generous than they really are. To figure out which companies on the Dow Jones Industrials Average (INDEX: ^DJI  ) are the stingiest with their cash, I looked at the total cash they had returned to shareholders over the past five years and divided it by their total earnings over the same period so see who was holding the most back.

The results were surprising. Two of the companies have huge dividends that top the average yield on the Dow, and the third isn't far behind. But remember, this isn't as cut-and-dried as having a great yield; it's about how much these companies paid us relative to what they could have afforded to shell out.


% Earnings Returned (5 Years)

Dividend Yield (%)

Chevron (NYSE: CVX  ) 44% 3.6
JPMorgan Chase (NYSE: JPM  ) 51% 3.6
Caterpillar (NYSE: CAT  ) 54% 2.1

To put this stinginess into perspective, over the past five years, the Dow as an index paid out 91% of earnings on average. That figure stands in stark contrast to Alcoa, which paid out 306% of its earnings over the past five years. As investors, we should be calling for a bit more of that cash.

Since all three of the companies we're looking at have strong yields, I'd look at share repurchases. These companies are downright cheap right now. JPMorgan Chase and Chevron both trade for less than 8 times earnings, and JPMorgan also comes in at a price-to-book ratio of 0.7. Caterpillar trades for 11 times earnings, and the world is its oyster. I expect the long-term growth of emerging markets to be a huge boon to them, and I'm not the only one: Analysts expect a long-term growth rate of 17.5%.

While I'm bullish on Caterpillar in the long run, it won't have a smooth trip. Mining-equipment maker Joy Global (NYSE: JOY  ) recently cautioned about slower growth in China because of limited "economic catalysts," a key market for both companies. While that may be true, China's "slow" growth still rang in at 8.1% recently. Boo-hoo. The keen investor would have seen the corresponding dip in Caterpillar's price as a buying opportunity for the long run.

More opportunities
As optimistic as I am about Caterpillar in the future, it's still not one of The Stocks Only the Smartest Investors Buy. Instead, I've put a lot of my money in the same sector as Warren Buffett, and you can, too. But we have more flexibility in the space than he does. Read about where Buffett wishes he could put his cash in our analysts' free report.

Austin smith owns no shares of the companies mentioned here. Motley Fool newsletter services have recommended buying shares of Chevron. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On June 16, 2012, at 12:51 PM, cloggervic2 wrote:

    With the current US tax code, the nonsensical double taxation of company dividends in the case of regular C-corporations makes it not smart to pay out 100% of profit as dividends, All this accomplishes is to send 64% of it to the government+State. If the company pays no dividends, only 40% of profit goes to the government+State. If the company pays out 50% in dividends, 52% of it goes to goiverment + State.

    This has gotta be changed! Who in the world wants to start a company, the majoorty of whose profits go to goverment, that has nithing invested in it? It's monstroiusly unfair to investors who take all the risk.

    The baird of directors in every case should take a decision oin dividends based on what is in the best interests of shareholders. If the company is debt laden, the firts priority should be to use retianed profit to pay down debt. If the interest on debt is low, and the comopany sees investment opportunities that would return more than the interest on debt, then they should retain profit to reinvest. Buying back own shares is one variation on this. Ultinately however, shareholders do want to see income from investment and not be forced to sell shares to obtain income.

    REITS, LLCs, S-corps, Mutual funds and the like are singkly taxed; their profts are passed through to the shareholder and taxe donly once in the hands of the shareholder. This is the way it should be for ALL entities. If you retain profit, it is taxed at the corporate rate; if you pay out pretax profit, it is taxed only once in the hands of the recipient.

    Vote for a government that will bring about this change and rekindle American capitalism, which has nearly been taxed to death.

  • Report this Comment On June 16, 2012, at 1:42 PM, liptonius wrote:


    I catch a few of your pieces a month, usually through Yahoo finance.

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    That said: Motley is not nearly as repulsive as Minyanville, whose online presence could only be improved by a happy, purple dinosaur singing happy, purple, investment songs.

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    It's poison.

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Related Tickers

10/21/2016 4:47 PM
^DJI $18145.71 Down -16.64 -0.09%
CAT $86.33 Down -0.30 -0.35%
Caterpillar CAPS Rating: ***
CVX $101.30 Down -0.57 -0.56%
Chevron CAPS Rating: ****
JPM $68.49 Up +0.23 +0.34%
JPMorgan Chase CAPS Rating: ****
JOY $27.89 Up +0.02 +0.07%
Joy Global CAPS Rating: ****