The Daily Dow
Monday, July 14, 1997
by Robert Sheard

LEXINGTON, KY. (July 14, 1997) -- Today's split of CATERPILLAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> brings up a topic sometimes misunderstood about the Dow Approach.

When a stock splits, the dividend yield is not affected by the split, even though the price is changed. The dollar dividend is also split in the same proportion as the stock price. Caterpillar's $2.00 dividend, then, is reduced to $1.00 per year, and its dividend yield remains the same. But the split doesn't boost it into the Beating the Dow stocks. Caterpillar rests just outside the top ten.

So a split by itself is not enough to move a stock into our High Yield Ten rankings. If a stock is already in the High Yield Ten, however, a stock split can indeed change the rankings for the Beating the Dow order (which ranks the ten high yielders by stock price).

Why does the low price make the stock more attractive? There's a demonstrable link between low-priced stocks and volatility. In fact, as Norm Fosback demonstrates in his book Stock Market Logic, low price is a good indicator of future high volatility. It's even a better indicator of future volatility (or beta) than is historical volatility (beta).

So if you have a group of stocks presumably poised to go up (as indicated by the high yields), then choosing the lowest-priced stocks within that group should increase your volatility, and thus profits. 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. ________________________________


1997 Foolish Four Model
Stock  Change   Last
--------------------
T    +   3/16  35.44
GM   +   5/16  55.38
CHV  +   1/16  75.81
MMM  +   3/16  103.50

          Day   Month    Year
        FOOL-4   +0.35%   1.16%   3.35%
        DJIA     +0.01%   3.15%  22.87%
        S&P 500  +0.18%   3.75%  23.98%
        NASDAQ   +1.41%   5.67%  18.04%

    Rec'd   #  Security     In At       Now    Change
   1/2/97  120 3M            83.00    103.50    24.70%
   1/2/97  153 Chevron       65.00     75.81    16.63%
   1/2/97  179 Gen. Motor    55.75     55.38    -0.67%
   1/2/97  479 AT&T          41.75     35.44   -15.12%


    Rec'd   #  Security     In At     Value    Change
   1/2/97  120 3M          9960.00  12420.00  $2460.00
   1/2/97  153 Chevron     9945.00  11599.31  $1654.31
   1/2/97  179 Gen. Motor  9979.25   9912.13   -$67.13
   1/2/97  479 AT&T       19998.25  16974.56 -$3023.69


                             CASH    $767.60
                            TOTAL  $51673.60