Blue-Chip Stocks With Low Dividend Yields

Hershey stock has come down 15% since the Christmastime period when I wrote about it being overvalued. The price currently sits at $93 per share (down from the January high of $111). I would classify the current price as high end of fair value. Many people will look to the 2.3% dividend yield and conclude that it is too low to meet their needs.

I certainly get that. If you have a plan to live off dividend income within the next ten years, you are going to receive much higher checks if you buy Chevron at $105 per share, lock in a starting yield of 4%, and reinvest those dividend payments until the time comes when you need the cash.

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Some Stocks Are Ticking Time Bombs

There is a reason why debt matters. There is a reason why you have to dig in and study balance sheets instead of making investment decisions based on what you see pop up in a stock screener. For instance, imagine if you looked up Weight Watchers. You would see a stock generating $1.26 per share in profits and trading at a valuation of 5x earnings. That would look like a really good deal. You can reasonably think, “Hey, America has an obesity problem that is only going to get worse, and people are going to want to use services like Weight Watchers to get their BMI under control.”

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My Recommendation: Look To Berkshire Hathaway

Berkshire Hathaway is sitting on an overwhelming amount of cash. It overshadows just about every other company I study in terms of raw, untapped earnings power. As of last quarter, Warren Buffett had $62 billion in cash sitting on Berkshire’s balance sheet. The market capitalization of the stock is $360 billion, meaning 17.2% of your purchase price is sitting in cash alone. If you buy a share of Berkshire for $145, your look-through portion of cash is $24.94 per share. The only other companies in similar situations are tech giants like Microsoft and Apple where the long-term business model is subject to rapid changes in technology in a way that Berkshire Hathaway is not.

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