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All Contents © 2017The Kiplinger Washington Editors
By Aaron Levitt
| October 2017
While some pundits claim that the Dow Jones Industrial Average isn’t necessary a great index to follow, it does have one great thing going for it — great income potential. Given that the stocks in the Dow Jones industrial average are some of America’s largest and most important companies, what you really have is a collection of some of the bluest Blue-Chip dividend payers in the market. These are firms with long dividend histories, through multiple market cycles.
Blended together, the stocks in the Dow Jones index yield a respectable 2.08% — as represented by the index tracking SPDR Dow Jones Industrial Average ETF (DIA).
But taken individually, we get a much different yield picture for the Dow Jones Average — one that can pay nearly 5% in dividends. For income seekers, that’s a yield to get the blood pumping. It’s even better when that sort of high yield is backed by one of the largest companies on the planet.
With that, here are the 10 best Dow Jones dividend stocks ranked by overall yield.
Prices and data are from the original InvestorPlace story published on October 6, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Dividend yield: 4.7%
When it comes to wireless telecoms, there’s really only a handful of players in the game. And when it comes to the Dow Jones, Verizon Communications Inc. (VZ) is the only one that matters.
VZ already features impressive penetration in the U.S. wireless market. In fact, it’s the largest wireless telecommunications provider in the United States. And those 140 million cellphone customers pay a pretty penny to keep their wireless services running. And that fact has helped create plenty of cash flows and profits over the years. Profits that have helped pad the firms rich 4.7% dividend.
But VZ isn’t done yet.
With mobile penetration slowing, VZ has looked elsewhere for growth. That includes a hefty dose of data mining and digital advertising. Thanks to its purchases of AOL and Yahoo!, Verizon has created a major ecosystem of users across multiple digital platforms. That’ll keep the growth going as it’s able to merge content, mobile and advertising into one platform.
In the end, that’ll help keep the dividends humming from VZ for a long time.
Dividend yield: 4.1%
It’s no secret that International Business Machines Corp. (IBM) has been down in the dumps for a while. Much of its tech promise hasn’t lived up to the hype. In fact, IBM has reported twenty-one consecutive quarters of revenue declines. But over those quarterly drops, Big Blue has managed to keep the cash flows and profits humming along — with its yield now over 4.1%.
But IBM’s fortunes may finally be turning around. The firm continues to double down on services, cloud computing, monetizing its artificial intelligence platform Watson, big-data analytics, cyber security and the overall Internet of Things (IoT). These areas come with high margins. So even if it sells less, it’ll make more per transaction.
Moreover, the Dow Jones stock has been moving into one of the fastest growing areas of tech: block chain.
The firm has been investigating the new technology by investing “employee time and energy” into the sector. That includes using the tech in supply chain management and compliance applications for its customers.
This could open up the flood gates for IBM and finally end its revenue woes. Meanwhile, investors can sit back and collect its high yield.
Dividend yield: 3.9%
Over the past 10 years, General Electric Company (GE) stock has been the worst-performing stock in the Dow Jones industrial average and has under-performed the S&P 500 by a mile. And with that performance, former CEO Jeffery Immelt was shown the door.
And that could be the spark that this Dow Jones stock needs to get its mojo going.
New CEO John Flannery has already begun kicking butt and taking names at GE in an effort to streamline its business and cut costs. GE recently dumped its industrial solutions business to Swedish-Swiss multinational ABB Ltd (ABB), announcing plans to sell segments of its light-bulb business and most recently selling its very lucrative Water & Process Technologies Division to SUEZ for $3.4 billion.
These asset sales and more will hopefully streamline GE’s unwieldy nature and make it more of a focused industrial stock. That should help it on the profit front and allow it to trade at multiples closer to its peers.
While Flannery has his work cut out for him, the new smaller GE could be a nimble giant. Look for more asset sales in the near future and collect its 3.9% dividend while you wait for the transformation to happen.
Dividend yield: 3.7%
For Dow Jones stock Chevron Corporation (CVX), the dueling threats of lower oil prices and lower production hurt hard.
Over the last five years, CVX’s revenues have declined by an average annualized rate of about 14.7%. But more recently, things have been looking up for the major integrated oil stock.
For one thing, oil prices have risen. That should help improve CVX’s profits as it will make more per barrel it sells.
And speaking of those barrels, Chevron is now producing more of them. Thanks to a few mega-projects coming online, CVX saw its upstream production volumes rise by an average of 104,000 barrels per day during its latest quarter as projects like its Gorgon LNG have kicked on. The combination of higher oil prices and higher production has done wonders for its cash flows and dividend coverage ratios.
For investors, that means its 3.7% yield is one of the best in the energy sector and will only be strengthened further by CVX’s moves to cut costs further and raise production by an extra 400,000 barrels per day over the next few years.
Dividend yield: 3.6%
The original blockbuster drug stock Pfizer Inc. (PFE) still has a lot to like about it. The major pharma has taken steps in recent years to help limit its patent cliff problems. That’s included beefing up its biotech research. Its Innovative Health division now makes up the bulk of Pfizer’s sales, bringing in $7.67 billion last year.
That includes its breast cancer drug Ibrance. Given its first mover status, PFE has already seen some tremendous growth out of treatment. Sales of the new drug grew 67% in the second quarter and are expected to grow further as rival drug makers products have stumbled. Sales of Ibrance have also turned the tide in terms of falling revenues at the firm
This could be PFE’s next Viagra in the making and help it leap over its patent cliff with gusto.
With more major drugs coming its way, PFE has kept busy buying back stock and raising its dividend. Meaty cash flows from its stable portfolio of drugs have helped reduce debt as well. For investors, the prescription for this Dow Jones stock is buy shares and collect its strong 3.6% dividend.
Dividend yield: 3.5%
There’s no doubt about it, Cisco Systems, Inc. (CSCO) is a cash flow machine, and increasingly it’s handing those cash flows back to investors in a big way. CSCO currently yields 3.5%.
Driving that has been CSCO’s moves into other businesses outside its core networking products. This includes everything from cyber security, big data and the “Internet of Things” connectivity to automated vehicles and even renewable energy solutions. Even better is that Cisco has used them to bolster its networking assets. Want to connect to your factory together? We’ll build the network, secure it and then help you with the automation.
That’s a triple play of profits.
As a result, Cisco has more than quadrupled its dividend over the last years and it currently generates about $13 billion in free cash flows. Today, the former dot-com darling’s cash hoard has grown to more than $70 billion.
That means more dividend increases are ahead for Cisco and its shareholders.
Dividend yield: 3.3%
“Buying the world a Coke” is still ringing true after all these years. As the world’s biggest beverage maker The Coca-Cola Co. (KO) still has the goods to keep paying its dividend. And it could be getting better for KO.
That’s because it finally is making moves into healthier and more natural drinks.
It’s true that sales of its signature and namesake sodas are declining, but sales of its water, juices and other natural beverages are starting to rise. Even better has been its ownership of Monster Beverage Corporation (MNST). Coke already has a 17% stake in the firm, but rumors are starting to fly that KO wants all of Monster and its stable of natural sodas and segment-leading energy drinks. By buying out MNST outright, KO will get a very much needed shot in the arm in terms of revenues and add a vast portfolio of higher-margined beverage brands to its arsenal.
Meanwhile, portfolio pruning and changes to its line-up has Coke slimming down for the better.
It’s no wonder why Warren Buffet has continued to hold shares of this Dow Jones stock. And you should too for its 3.3% dividend.
Dividend yield: 3%
For Procter & Gamble Co. (PG), the name of the game is transition. As the world’s largest consumer products company, PG has seen its growth slow in recent years. It’s hard to move the needle when you already have a host of billion dollar brands. To that end, P&G has begun shedding non-core brands and trying to get its mojo back.
But for activist investors that hasn’t been enough. A variety of private equity firms and hedge funds have taken PG to the mattresses. Proposals included selling off and even splitting P&G to create growth. The idea is to create additional share gains and cash flow generation. And it could use the help on these fronts. P&G’s dividend coverage ratio has gotten a tad bit high in recent years as sales have slipped.
For investors today, Procter & Gamble will pay you a healthy 3% dividend as the proxy battle takes place.
Dividend yield: 2.79%
Much like fellow tech Dow Jones stock Cisco, Intel Corporation (INTC) is an elder statesmen of tech. But as with CSCO, it’s a good position to be in. INTC has become a dividend machine in its old age. It already features strong cash flow generation and low payout ratio.
Much of that has come on the back of its dominance in PC chip sales. While semiconductors for computers are still running the show, INTC has continued to branch out in a variety of other avenues. Most lucrative continues to be its moves in data-center semiconductors and those needed to power the burgeoning internet of things (IoT) sector.
Intel is quickly becoming the go-to name for connectivity.
And that transformation is starting to show in its earnings. During the second quarter, INTC posted strong second-quarter revenues of $14.8 billion. That was good for an increase of 14% year-on-year. Non-volatile memory solutions, IoT and data center solutions all drove the show with strong double digit revenue jumps.
With growth like that, INTC will quickly forget about declining PC sales and its revenue loses in these areas. Investors will forget as well, as cash flows for the quarter surged and Intel’s dividend coverage ratio got even better.
In the end, INTC is one heck of a Dow Jones dividend stock to buy.
Dividend yield: 2.60%
It’s no secret that Wal-Mart Stores Inc (WMT) is the world’s largest retailer with thousands of brick-and-mortar stores across the planet. But what is a secret is that WMT is also one heck of an online force that is going toe-to-toe with Amazon.com, Inc. (AMZN).
Through a series of calculated moves, Wally World has gone hard into e-commerce to fend off AMZN and its kin. It’s buyout of Jet.com is looking like a major win, while its buyouts of smaller shopping sites, adding additional online shipping/pickup options and beefing up the number of SKUs on Walmart.com all seem to be working.
Last quarter, WMT managed to post a 60% gains in e-commerce revenues, with a 60% net sales increase and GMV up by 67%. What was really surprising was this was the second quarter of 60%-plus annualized revenue gains for online sales at Walmart. Even better is that the firm reported an increase in store foot traffic and higher sales because of its online store pick-up option.
As WMT starts to dominate online and regular retail sales, its dividend should keep growing. That makes it a Dow Jones retail stock you have to own.
This article is from Aaron Levitt of InvestorPlace. As of this writing, he held none of the aforementioned securities.
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