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My last stock pick of 2008 will be Dow Chemicals.  This is a pure and simple dividend play.  Honestly not much more into it than that.  The closing on Friday was $19.64 (though for the record I’ll count closing of the day posted) with a dividend yield of 8.69%.

Sure we’ve all been pounded chasing a few falling knives before, but as noted in: http://seekingalpha.com/article/111955-dow-chemical-a-legitimate-high-yield-stock

the CEO of DOW stated in October’s earnings release:

Dow is the only company in the Fortune 200 to have paid its regularly quarterly cash dividend without reduction or interruption since 1912…That’s 388 consecutive quarters. I’ve said it before, but I want to say it again, we will not break that streak. [1]

Dow is bound to making it’s dividend payments.  Once it misses a dividend a pile of shares that have been held for decades will get released causing share prices to plummet, and who wants to be the CEO on the watch for that one?

In the chart above I swore DOW had a stock split I had to verify before I wrote this post.  Essentially DOW has only returned 2.9% per year since 1993.  Earnings in 1993 were about $2.02 a share excluding all the speciality business sales and breast implant litigation with a dividend of 21 cents a share per quarter.  The current EPS is $2.75 with a dividend of 42 cents a share per quarter.  So just counting earnings the growth of price and earnings are roughly in line (earnings grew at almost 2% per years) however, the dividend has been growing at 5% a year.  Future earnings outlooks according to Yahoo Finance is 7% per year for the next 5 years.  This kicks out a PEG of about 1. 

DOW is one of those companies I have wanted to own for awhile and it’s likely one I’d hold for awhile.  If you have a portfolio outside of your IRA or 401K I’d recommend it there as it likely will fall into the long term capital gain category with dividend income both of which are tax lowered than ordinary income for most investors.

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