The Malcolm Berko Blog

Dear Mr. Berko: Dow Jones has a group of stocks in its dividend index on which they maintain specific prices and keep daily tabs, sort of like the Dow Jones 30 Industrials. I think there are 50 stocks in this index, which according to my broker, has done better than the Standard’s & Poor’s in the past dozen years. Well, I’ve got $21,000 to invest for my individual retirement account.
Will you please look at that list and recommend five of those 100 stocks you think are the best in the list and perhaps I could buy 50 shares of each? My main goal is conservative long-term principal growth with good dividend growth.
R.R.
Joliet, Ill.
Dear R.R.: You are referring to the Dow Jones Select Dividend Index, which is composed of 50 individual stocks. Barclays Bank, in November, came out with iShares called the Dow Jones Select Dividend Index (DVY-$55) that trades on the American Stock Exchange. DVY’s performance should correspond to the Dow Jones Select Dividend Index, less fees and expenses. So you might consider investing some of your $21,000 into shares of DVY that has a current return of 3.57 percent.
However, among the 50 issues in the DVY, I feel the following five may have above-average long-term performance or may be among those with the best long-term performance potential. You can buy the DVY from your broker.
Universal Corp. (UVV-$49) pays $1.56 and yields 3.1 percent. This company buys, stores, processes and sells tobacco for cigarettes, pipes, cigars and chews. Tobacco represents 59 percent of revenues. UVV also distributes lumber and building supplies in Europe and sells commodities, which accounts for 41 percent of revenues. Dividends have been increased for 15 consecutive years.
MeadWestvaco Corp. (MWV-$28.80) pays 92 cents and that dividend yields 3.2 percent. MWV produces packaging, coated and specialty papers, specialty chemicals and office products. MWV also owns 130,000 acres of forestland in Brazil (more than 1,000 miles from the Amazon rain forest) plus 2.4 million acres of forestland in the United States. MWV lost money in the last three years but should earn a small profit this year and a good profit in 2005.
Lincoln National Corp. (LNC-$45) pays a dividend of $1.40, which yields 3 percent. LNC is a holding company that sells annuities, various forms of life insurance, mutual funds and managed account products. Wall Street analysts expect record earnings this year and record earnings in 2005. Meanwhile, LNC’s dividend has increased for 15 consecutive years and may increase this year as well as 2005.
Comerica Inc. (CMA-$54) with $55 billion in assets is the largest bank in Michigan and a multistate financial services provider. The $2.08 dividend yielding 3.8 percent has increased each year since 1988 and will probably increase next year. During the last 15 years, asset growth, loan growth and book value have increased impressively.
PPG Industries Inc. (PPG-$61) is an $87 billion global manufacturer of various glass products, fiberglass, coating, resins and industrial chemicals. Its current $1.80 dividend yields 3 percent and has increased each of the past 15 years. Record revenues and earnings and annually higher dividends are expected over the next few years.
While these are my favorite issues, they may not provide you with the performance of a more widely diversified selection of issues from the DVY. So I’d recommend that you also consider investing part of that money in a Unit Trust called The Dow Target Dividend Portfolio, which can also be purchased from your broker. This Unit Trust selects 20 issues they feel are the top performers in the DVY, which they believe will produce above an average total return from capital growth and dividend income. The strategies they use in selecting their 20 issues (if applied since 1992) would have generated a return, better than twice that of the S&P 500.
Another issue that you might consider along with those five stocks and the unit trust is a closed-end fund called The John Hancock Patriot Select Dividend Trust (DIV-$13.80). DIV’s $1.08 dividend (9 cents a month) yields 7.9 percent and it trades at a 1.4 percent discount to net asset value. DIV is 33 percent leveraged, has a portfolio turnover of just 17 percent and has $212 million in assets. Some of its top holdings are El Paso Tennessee Pipeline, Alabama Power, Bear Stearns, Energy East, KeySpan, DTE Energy, Lehman Brothers Holdings, HSBC and CH Energy Group.
So I’d suggest investing $5,000 in those five stocks, $5,000 in the unit trust $5,000 in DVY and $6,000 in DIV. And I wish you good long-term investing.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
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