by Jeff Reeves | October 25, 2011 5:00 am
The top 10 high-yield dividend stocks in the Dow compose an interesting list of investments. The best dividend stocks in the index represent some of the biggest brands in the world, are focused on a select group of sectors — health care, consumer staples and telecom — and can highlight broader areas of opportunity in this market. Additionally, the recent performances of some of these stocks share-wise show that dividends are only part of the profit story here.
It’s also worth noting that of the top 10 dividend stocks as of this writing, none has a dividend yield of less than 3%. There are a handful of other Dow stocks that have yields of 2.9% or higher — shockingly, financial stock JPMorgan Chase (NYSE:JPM) once again has returned to those levels — but that just isn’t enough to cut it considering the big dividends of the current leaders.
If you’re looking for a great income investment and a dividend stock that is going to stay strong in the long term, look no further than this list. Here are the top 10 dividend stocks in the Dow Jones Industrial Average:
Current Dividend Yield: 3.2%
Year-to-Date Performance: +1%
The broader stock market has been choppy in 2011, and Procter & Gamble (NYSE:PG) has been taken along for the wild ride. Shares essentially have moved in concert with the Dow Jones Industrial Average this year, squeaking out a small gain. But it’s important to acknowledge that Procter & Gamble also pays a good dividend, so investors have income potential even if shares continue to flatline. Revenues and EPS numbers haven’t been growing at a breakneck pace, but they are indeed still growing — and the power of P&G brands like Gillette, Pampers and Duracell means this company will not be going away, even if the dreaded “double-dip” recession does transpire.
Current Dividend Yield: 3.3%
Year-to-Date Performance: +11%
Kraft (NYSE:KFT) has outperformed a flat stock market significantly this year thanks to the fact that cash-strapped consumers continue to eat at home and focus on packaged foods instead of dining out. There’s also reason to be optimistic that management understands the multifaceted challenges of the food sales arena, since Kraft announced in August that it will spin off its snack food operations to create a North American grocery company and a global snacks powerhouse — two businesses with different ideas. If you want to focus on one flavor of this food stock, wait until after the split to jump in. But considering the nice dividend and the power of both divisions, you might not want to wait.
Current Dividend Yield: 3.4%
Year-to-Date Performance: +17%
You might not think Intel (NASDAQ:INTC) would offer a big dividend, but its 3.4% yield easily ranks it in the top 10 Dow dividend stocks. You also might think INTC isn’t doing so well right now, considering the trouble with consumer spending and the lack of “enterprise” sales of PCs to businesses in these uncertain times. Not so on that front, either. The chipmaker has posted big gains in 2011 thanks to impressive baseline demand for high-tech items. After all, it’s not like computers are becoming less common because of the downturn — if anything, they are more crucial than ever before to boost productivity. As a result, Intel not only beat earnings in the most recent quarter, but INTC upped its current forecast to $14.7 billion. That’s $500 million higher than analysts expected.
Current Dividend Yield: 3.6%
Year-to-Date Performance: +3%
The first health care stock on the list of top 10 Dow dividend stocks is Johnson & Johnson (NYSE:JNJ). The company is part-pharmaceutical giant thanks to offerings like vaccines, and part-consumer health company thanks to big brands like Band-Aid and Tylenol. Health care is a recession-proof sector, as folks have to keep taking their medications even if the economy isn’t firing on all cylinders. Revenue admittedly has been a bit stagnant at J&J during the past few years; however, earnings per share continue to improve. There’s also the nice 3.6% dividend to consider — providing a good incentive to play this stock over the long term.
Current Dividend Yield: 3.6%
Year-to-Date Performance: -8%
E.I. du Pont de Nemours & Company (NYSE:DD), a.k.a. DuPont, has lagged the market so far in 2011, but dividend investors still should take note of this stock. The 3.6% yield is one of the best in the Dow Jones Industrial Average. What’s more, Dupont could be a good long-term investment for the inevitable recovery — because even if there is a tough market for another year or two, DuPont will hang tough and pay a good dividend while you wait.
The key driving factor holding back DuPont is, of course, the economy. As a specialty chemical company, it provides some of the raw materials for a host of products in all corners of the market. Once demand picks up, so will DD stock. In the meantime, this stock’s nice dividend, bulletproof balance sheet and core chemical business serving industries like agriculture will keep DuPont stable.
Current Dividend Yield: 3.6%
Year-to-Date Performance: -9%
General Electric (NYSE:GE) forever will be tarnished in the minds of stockholders because of its move during the financial crisis to slash its dividend by two-thirds, from 31 cents to just 10 cents per share. While the dividend still is less than half that higher level, at just 15 cents, the subsequent flop in GE stock amid this modest dividend boost means General Electric now boasts a dividend yield that is one of the best in the Dow. There certainly are issues at GE as revenue continues to suffer and the lingering doubts caused by the Japan nuclear disaster threatens to severely impact the company’s reactor division. But the dividend provides a decent hedge and the company certainly has the diverse operations needed to survive any lingering economic troubles.
Current Dividend Yield: 4.2%
Year-to-Date Performance: +10%
Pfizer (NYSE:PFE) has outperformed the market nicely in 2011. Yes, it faces the same challenge that persists across all of Big Pharma — looming patent expirations. But the company has a decent research pipeline with some up-and-coming drugs that could rotate in to prop up revenues. Most importantly for dividend investors, the company has $26 billion in cash and a simply amazing 12-month cash flow of $22 billion. That’s almost enough to pay four years of its current dividend! Throw in a P/E ratio of around 8.5 — one of the lowest in the industry — and you have a decent buy in Pfizer right now.
Current Dividend Yield: 4.6%
Year-to-Date Performance: -8%
Merck (NYSE:MRK) is very similar to Pfizer, except for its lagging performance. It, too, faces patent expirations and is hoping its pipeline will step up to fill the void. It, too, is trading for a bargain P/E of 8.7. It, too, pays a dividend well north of 4%. Investors looking for a lot of fireworks probably will be disappointed by this Big Pharma stock, but just because Merck isn’t sexy doesn’t mean it can’t be profitable. A huge $41 billion buyout of rival Schering-Plough in 2009 should help provide new areas of growth. Throw in solid cash flow and a history of dividends since 1935, and you can understand why this stable company is a bedrock buy for many portfolios.
Current Dividend Yield: 5.4%
Year-to-Date Performance: 3%
Verizon (NYSE:VZ) is the leading wireless telecom provider in the U.S. by subscriptions. The company also is one of the top high-speed Internet providers in America via its FiOS fiber optic network. As the world becomes increasingly wired, it’s more important than ever before for companies like Verizon to be involved with the operations of businesses and the lives of regular Americans. This provides a very stable revenue stream that accounts for huge dividends. What’s more, Verizon’s EPS for the fiscal year are on track to tally over $2.20 — easily double the 90 cents per share earned in fiscal 2010.
Current Dividend Yield: 5.9%
Year-to-Date Performance: -2%
AT&T (NYSE:T) is the biggest dividend payer in the Dow Jones Industrial Average, as measured by current annualized payout and stock valuation. With a dividend yield of about 6%, this is a heck of an income play. After all, 10-year T-Notes are around 2.2% — about a third of AT&T’s dividend yield. The proposed merger between AT&T and T-Mobile has hit a snag as opposition has mounted among consumer groups and certain members of Congress. But if the deal manages to squeak through, it could be a huge boon to AT&T as it leapfrogs Verizon to become the No. 1 cell phone service provider in the nation. Red-hot growth might not be ahead, but AT&T is a stable company with a great dividend that’s not going anywhere. That’s the kind of investment many investors are impressed with after a volatile 2011.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
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