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The Daily Dow LEXINGTON, Kentucky (12/3) -- The experts are calling it "profit taking." Pilots would call it "turbulence." Disney World calls it next year's new thrill ride. Whatever way you explain it, the Dow had a wild ride, dropping some 40 points in the last 15 minutes to plunge from an early gain of more than 30 points to a loss of nearly 80 points on the day. The wild swing wasn't so meaningful for the Foolish Four model, with Kodak and 3M flat for the day, Chevron dropping $1 1/2 and DuPont adding to yesterday's rally with another $2 rise.
One of the basic Dow questions that comes up from time to time is just how do we go about calculating the yield figure we use as the first screen for the 30 Dow stocks. And it sounds like an obvious enough topic, but at times it can actually be a tricky issue.
The basic approach is to take the current quarterly dividend, multiply it by four to get the current annual dividend, and then divide that by today's stock price to get the dividend yield. The problem, however, sometimes lies in how one gets the current quarterly dividend.
The basic approach is simply to use whatever the company paid in its last quarter. And in most cases, that's all there is to it. But the Dow companies often increase their dividend payments; some companies even do it every year. So when a company which has been paying 50 cents a share each quarter officially announces that it will now pay 55 cents per share, using the old dividend figure understates the yield. So, I watch for dividend announcements each day in the newspapers and when a company officially announces a dividend change, I use that figure rather than what the company paid in its most recent quarter. It's a more accurate figure for the coming year.
Another problem exists when a company pays a special dividend. For instance, Alcoa announced that it would be paying a special dividend this year, boosting the yield much higher than its regular dividend rate. But the dividend hike was only temporary, so in that case, I didn't include it for the purposes of the Beating the Dow rankings.
Another anomaly this year was Woolworth, which announced late in 1995 that it was suspending its 15-cent-per-share dividend indefinitely. It hasn't canceled its dividend, but isn't going to pay it until further notice. Since there was, in effect, no real dividend yield, I did not include Woolworth in the Beating the Dow rankings for this year. Alas, it's by far the best stock on the Dow this year, too, wouldn't you know? But since it doesn't really pay a dividend, it doesn't get into the rankings.
The final issue is how to round off the figure in case several stocks are tied for the often crucial final spot on the list. Because of space limitations, most newspapers carry the yield figure only to one place beyond the decimal, but in order to be slightly more precise since we're not limited that way, we carry the yield figures out to a second place past the decimal point. That eliminates almost all ties and is slightly more accurate. So for those of you who are wondering why Goodyear isn't in the top ten on our list lately, carrying the yield figure out to a second place past the decimal drops Goodyear into the number eleven position on the yield list.
There's nothing wrong with rounding it off differently, but different techniques can sometimes generate different results. Keep in mind that this isn't brain surgery, but a simple mathematical game to take advantage of the law of averages. There's no "right" way when it comes to which yield calculation you prefer. Stay Foolish! Today's Dow Numbers Stock Change Bid ------------------- DD +2 98.13 CHV -1 1/2 65.50 MMM --- 83.13 EK - 1/8 81.38 IMN - 7/8 31.75
Day Month Year History
FOOL-4 -0.48% 3.77% 31.28% 31.28%
DJIA -1.21% 6.85% 25.90% 25.90%
S&P 500 -1.09% 6.10% 21.49% 21.49%
NASDAQ +0.04% 6.46% 23.59% 23.59%
Rec'd # Security In At Now Change
1/2/96 142 DuPont 69.88 98.13 40.43%
1/2/96 149 3M 63.76 83.13 30.37%
1/2/96 380 Chevron 52.38 65.50 25.06%
1/2/96 148 E. Kodak 67.00 81.38 21.46%
7/16/96 14 Imation 26.16 31.75 21.38%
Rec'd # Security In At Value Change
1/2/96 380 Chevron 19902.50 24890.00 $4987.50
1/2/96 142 DuPont 9922.25 13933.75 $4011.50
1/2/96 149 3M 9500.09 12385.63 $2885.54
1/2/96 148 E. Kodak 9916.00 12043.50 $2127.50
7/16/96 14 Imation 366.21 444.50 $78.29
CASH $1942.85
TOTAL $65640.23
Transmitted: 12/3/96
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