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Tickers in this Article: T, VZ, DD, GE, C, PFE
The holiday season is upon us, but instead of falling snow, retailers are watching expected holiday spending fall to earth. Rather than buying another 3 pack of T-Shirts or a gift card, investors should consider purchasing dividend-paying stocks from the Dow Jones Industrial Average (DJIA). The idea is to use the pullback in the market to identify stocks that fit the following four-part screen:

  1. Dividend yield greater than 5%
  2. Trading below $25 per share
  3. Negative total return (past 12 months)
  4. Positive total return (past three years)
Screen No. 1 - Dividend Approach
Using the Dogs of the Dow as a baseline for identifying stocks on the DJIA that pay the highest dividends it's easy to identify stocks with dividends above 5%. Names at the top of the list with high yields include Citigroup (NYSE:C), Du Pont (NYSE:DD), AT&T (NYSE:T), Verizon (NYSE:VZ), General Electric (NYSE:GE) and Pfizer (NYSE:PFE). (To learn more about the Dogs of the Dow, read Barking Up The Dogs Of The Dow Tree.)

Screen No. 2 - Currently trading below $25 per share (as of Nov. 12, 2008)
The National Retail Federation (NRF) estimates consumers will spend $832.36 during the holiday shopping season. The NRF forecast of a 2.2% increase in holiday sales growth is its lowest since 2002.

With an entry point of $25 per share consumers could allocate just 20% ($166.47) of their holiday budget to investing in stocks that are likely to pay a dividend. The $25 share price is also a great starting point for investors who may have $100 to invest using a dollar cost averaging approach over the next few months. Stocks meeting the above two criteria include only Citigroup, Pfizer and GE among the stocks mentioned. Stocks just missing this target, with prices just north of $25, that deserve an honorable mention include AT&T, Verizon, and DuPont. (Learn more, in our related article Fight The Good Dollar-Cost Averaging Fight.)

Screen No. 3 - Negative Total Return (Past 12 Months)
As an investor you should always be on the lookout for a sale or in this case a price discount. Since the Dow has fallen from its peak above 14,000 in October of 2007 all of the stocks mentioned meet this criteria.

Screen No. 4 - Positive Total Return (Past Three Years)
An investment is not a bet, but rather a decision made by investors in search of positive returns. The three-year return timeframe gives investors an idea of how a stock has performed in up and down market cycles. Among the stocks mentioned only telecommunications providers AT&T and Verizon have returns in positive territory over the previous three years.

With a Nov. 12 closing price of $26.18 AT&T comes the closest of all the stocks mentioned to meeting the criteria of our four-part screen.

Final Thoughts
Gifts are nice and giving gifts is even better, but during this difficult economic season inexpensive stocks with healthy dividends could be the best stocking stuffers this holiday season.

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