7 Dow Dividend Stocks Safer Than T-Notes

Correction: A sentence in the first paragraph incorrectly demonstrated the impact of rising interest rates on the present value of a bond (to determine the present value of a bond, each of the following components must be specified: coupon payment, number of outstanding payments, current interest rate, and par value). The example has been removed.

NEW YORK, NY (TheStreet) -- Tuesday's stock market selloff has scared flocks of investors into the "safety" of 10-year Treasury notes, driving yields below 3% -- a 14-month low. Of course, higher-priced Treasuries are more susceptible to interest rate risk (as interest rates rise, the market value of the bond lessens), thus, a seemingly innocuous investment may actually be risky.

If this trend continues, fixed-income investors (read: retired persons) will find themselves in a precarious position: How much capital can be sacrificed for current income?

Unfortunately, there are no risk-free investments, but a "dividend acid test" can be used to determine the relative safety of an income investment. The following formula is designed to protect income investors from substantial loss of principal while providing a high level of current income:

Dividend Acid Test Formula
(10-Year Treasury Yield) less than (Stock Dividend Yield) less than (Liability-Adjusted Cash Flow Yield)

By ensuring that the stock's dividend yield is less than the liability-adjusted cash flow yield (LACFY), investors can be reasonably confident that an operational incident or upcoming debt maturity won't derail their dividend check. (The formula isn't perfect, but a pre-spill BP would not have passed this test.) This formula also demands that the LACFY be greater than the 10-year Treasury yield, providing investors with a Benjamin Graham inspired margin of safety.

Of the 30 stocks on the Dow Jones Industrial Average, only seven meet these criteria.