5 Best Dow Dividend Stocks to Buy Now
This mini-portfolio of blue-chip dividend payers is well-positioned to both generate income and hold up to headwinds for the rest of 2022.
The market is poised for one of the worst first halves of a year in history, but the best blue-chip dividend stocks never go out of style. Or at least, that has been true for the top-rated Dow dividend stocks thus far in 2022.
Back in February, we noted that the top-rated dividend payers among the 30 Dow Jones stocks were beating the market handily, and we figured they would continue to give income investors some much-needed peace of mind.
Indeed, they did. As you can see in the chart below, a cap-weighted index of the five top-rated Dow dividend stocks yielding at least 2% as of Feb. 14 has generated a total return (price appreciation plus dividends) of 11% in 2022. By comparison, the S&P 500's year-to-date total return stands at negative 17.5%.
Given the success of our initial index, we decided to update the components for the second half of 2022.
The Dow's Top Dividend Stocks Right Now
Here's how we found the Dow's best dividend stocks to buy now. Using data from S&P Global Market Intelligence, we screened the blue chip barometer for Wall Street analysts' highest-rated Dow components with dividend yields of at least 2.0%.
A quick note on S&P Global Market Intelligence's ratings system: S&P surveys analysts' stock calls and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score equal to or below 2.5 means that analysts, on average, rate the stock at Buy. The closer a score gets to 1.0, the stronger the consensus Buy recommendation.
That led us to the following five Dow Jones dividend stocks, which we list below by strength of analysts' consensus recommendations, from lowest to highest conviction. (Market data and analysts' ratings are as of June 24.)
5. Goldman Sachs
- Market value: $104 billion
- Dividend yield: 2.6%
- Analysts' consensus recommendation: 2.11 (Buy)
After falling by more than 20% so far in 2022, shares in Goldman Sachs (GS, $302.75) look like a screaming bargain, analysts say.
That's because GS stock trades for less than the firm's book value. Book value is the value of a company's assets in liquidation. Goldman is not only profitable, but most of its assets are highly liquid securities. If GS stock trades for a price/book value below 1.0, it's probably on sale.
"The company has a strong franchise and there are multiple revenue, cost and capital optimization strategies that can be implemented, but the market is still valuing the stock as though the returns will remain unchanged indefinitely," writes Oppenheimer analyst Chris Kotowski, who rates shares at Outperform (the equivalent of Buy).
Kotowski has plenty of company on the Street. Of the 27 analysts issuing opinions on GS tracked by S&P Global Market Intelligence, eight call it a Strong Buy, eight rate it at Buy and 11 have it at Hold. Their average target price of $416.81 gives GS implied upside of about 38% in the next 12 months or so. Add in the dividend yield, and the implied total return tops 40%.
- Market value: $235.5 billion
- Dividend yield: 3.0%
- Analysts' consensus recommendation: 2.04 (Buy)
A year-to-date price gain of more than 20% makes Merck (MRK, $93.13) the second-best performing Dow stock in 2022, and analysts see more upside ahead.
True, the Street has become incrementally less bullish on this healthcare stalwart over the past few months as its stock has closed in on its price targets. Nevertheless, analysts' consensus recommendation stands at Buy, with solid conviction.
Of the 24 analysts issuing opinions on Merck's stock, nine rate it at Strong Buy, five say Buy and 10 call it a Hold, per S&P Global Market Intelligence. With an average target price of $96.86 and a 3% dividend yield, the Street gives MRK an implied total return (price plus dividends) of 7%.
Although bears worry about Merck's reliance on blockbuster cancer drug Keytruda, which will lose patent exclusivity in 2028, bulls say such fears are overblown.
"While Keytruda is a key growth driver, the COVID-19 antiviral Lagevrio will make a substantial contribution in 2022," writes Argus Research analyst David Toung (Buy).
- Market value: $273.3 billion
- Dividend yield: 2.8%
- Analysts' consensus recommendation: 1.88 (Buy)
Shares are beating the broader market by about 25 percentage points in 2022, and analysts see more outperformance ahead.
KO was hit hard by pandemic lockdowns, which shuttered restaurants, bars, cinemas and other live venues. But those sales are now bounding back. Analysts likewise praise Coca-Cola's ability to offset input cost inflation with pricing power.
"We think KO's strong fourth-quarter results reflect its brand power and ability to thrive in an inflationary environment, as top line improvement was entirely driven by price and mix," writes CFRA Research analyst Garrett Nelson (Buy).
Twelve analysts rate Coca-Cola's stock at Strong Buy, six say Buy, seven have it at Hold and one says Sell, per S&P Global Market Intelligence.
Analysts' average target price of $69.82 gives KO implied upside of about 11% in the next 12 months or so. Add in the dividend, and the implied total return hits 14%.
2. Home Depot
- Market value: $290.9 billion
- Dividend yield: 2.7%
- Analysts' consensus recommendation: 1.82 (Buy)
Home Depot (HD, $283.00) has long been a way to play the housing market and discretionary consumer spending in general. With the former in a slump and fears mounting over the health of the latter, it's easy to understand why shares are off by almost a third in 2022.
Analysts see the drawdown as overdone, however, and say it affords investors a chance to buy a quality name at a great price. Indeed, the Street gives HD a consensus recommendation of Buy, with high conviction. Of the 33 analysts issuing opinions on shares, 16 call them a Strong Buy, seven say Buy and 10 have them at Hold.
Their average target price of $350.66 gives HD stock implied upside of about 24% in the next year or so. Add in the dividend, and the implied total return is even greater.
"While skeptics could point to HD's traffic decline and high inventory levels, we believe several data points point to the merit of its investment case," writes UBS analyst Michael Lasser (Buy). "While the stock could be volatile near term, we believe it presents a compelling long-term idea."
- Market value: $183.3 billion
- Dividend yield: 2.2%
- Analysts' consensus recommendation: 1.74 (Buy)
McDonald's (MCD, $247.90) gets the strongest consensus Buy recommendation of any Dow dividend stock yielding at least 2.0%.
Shares are off more than 7% for the year-to-date, but that still beats the S&P 500 by about 10 percentage points. Analysts not only expect that outperformance to continue, but for MCD to generate positive returns ahead.
The Street's average target price of $276.97 gives MCD implied upside of 12% in the next 12 months or so. Add in the dividend, and the implied total return comes close to 15%.
"We expect MCD's brand turnaround in the U.S. to be successful, setting the stage for a multi-year same-store sales recovery," writes Truist Securities analyst Jake Bartlett (Buy). "Most importantly, we think MCD's momentum appears sustainable, driven by its new value platform, improved food quality, digital order and pay, delivery and remodels."
Bartlett's view is very much in the majority on the Street, which gives the stock a consensus recommendation of Buy, with high conviction. Eighteen analysts rate MCD at Strong Buy, eight say Buy and nine have it at Hold.
How Are the Top Dow Dividend Stocks Holding Up?
Have a look at the chart below, and you'll see that a cap-weighted index of the current five top-rated Dow dividend payers has generated a negative total return for the year-to-date so far. That said, it's still beating the broader market's total return by a wide margin.
If our new index performs as well as our original one has, this mini-portfolio of blue-chip dividend stocks should bolster investors' portfolios in the second half of 2022 and beyond.