Top 10 Dow Dividend Stocks for Retirement Investors

by Jeff Reeves | April 16, 2012 10:00 am

Money185 Top 10 Dow Dividend Stocks for Retirement InvestorsDividend stocks haven’t really been all that impressive in 2012,[1] as “growthier” investments in tech have stolen the stage and the financial sector has just been on a tear.

But don’t count income investments out. Consider that JPMorgan Chase (NYSE:JPM[2]), which was granted Federal Reserve permission to raise its dividend in March[3], and Intel (NASDAQ:INTC[4]) have great yields despite huge run-ups in share price year-to date.

The reality is that despite some big moves up in share price for some stocks, the dividend yields in many low-risk stocks are rising, too. Consider that out of the top 10 Dow dividend stocks, not a single pick yields less than 3.1%!

If you’re a retirement investor, you know the importance of dividends to provide income via your IRA or brokerage account. And even those more on the aggressive side have to admit that an investor approaching retirement needs to keep a firm foundation for their portfolio — and low-risk dividend stocks are a great way to preserve capital while avoiding the very sleepy alternatives of an annuity or CD.

Whatever your strategy, these top 10 Dow dividend stocks are worth a look for your holdings:

#10: DuPont

DuPontLogo e1282585884678 Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 3.1%
Performance So Far in 2012:
+15%

The No. 10 spot on this list of Dow dividend stocks, based on yield, is a dead heat between E.I. du Pont de Nemours & Company (NYSE:DD[5]), a.k.a. DuPont, and two other picks — big oil stock Chevron (NYSE:CVX[6]) and packaged foods giant Kraft (NYSE:KFT[7]). DuPont is yielding 3.13% at the time of publication, as is Kraft, and Chevron is only a hair ahead with a yield of 3.16%.

We’ll get to Chevron and Kraft in a moment, but DuPont investors should know that this sleepy giant is turning around. Sure, DD shares lagged the market in 2011 with an 8% decline. However, it has more than made up for that loss with a surge of 15% right out of the gate in 2012 — about triple the broader market’s gains.

Dividend investors in it for the long term know the staying power of DuPont. The company has paid dividends for more than 100 years and is a stable industrial giant that isn’t going anywhere. In fact, revenue is up year-over-year for nine straight consecutive quarters and earnings per share have gone from $1.92 for fiscal 2009 to an impressive $3.68 in fiscal 2011 — almost double — and are forecast to jump another 15% in fiscal 2012.

#9: Kraft

KraftFoodsLogo e1282588018415 Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 3.1%
Performance So Far in 2012:
-1%

We’ll get to Chevron next. But as for Kraft, the company has been pretty lackluster in the short term. Shares are down about 1% YTD despite the market updraft. However, the one-year return is much nicer at 15% or so — triple the market.

That longer-term strength is due in part to Kraft’s plans to split into two separate companies[8]. Operations will include a global snack foods corporation with the admittedly goofy name Mondelez[9] (that’s pronounced Mon-Da-Lay) and a North American grocery company keeping the flagship name.

So don’t get too used to the current model or dividend, because these two segments will split up within the next year. You’ll of course own both of them if you buy in now, so keep that in mind if you’re shopping for Kraft stock before the spin-off.

#8: Chevron

ChevronLogo Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 3.2%
Performance So Far in 2012:
-4%

It might be a surprise that Chevron (NYSE:CVX[6]) hasn’t done well lately as crude oil prices have risen. CVX stock actually is in the red 4% in 2012 while the market has moved about 5% higher. The one-year return for Chevron also is negative.

But on the income side, Chevron has strength that is hard to overlook. The company has paid dividends since 1912. It has increased its payouts twice in the last year, from 72 cents quarterly in March 2011 to 78 cents in then up again to 81 cents as of December 2011.

Crude oil prices aren’t going anywhere, so it’s safe to say that Chevron is at the very least going to hang tough. If you’re a dividend investor looking for a low-risk stock with a reliable revenue stream that ensures juicy payouts, Chevron certainly is worth looking into.

#7: Procter & Gamble

ProcterGambleLogo Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 3.2%
Performance So Far in 2012:
-1%

Procter & Gamble (NYSE:PG[10]) was named one of Dividend Growth Investor’s top dividend plays for 2012 in a recent article on InvestorPlace.com[11]. P&G has raised distributions for 55 years in a row, which has been accomplished by only 11 companies worldwide.

Of course, Procter & Gamble shares have fallen out of favor in 2012 as the attention has been on banks and tech stocks. But the consumer products giant is going nowhere thanks to brands like Gillette, Pampers and Duracell to provide reliable revenue across rough economic times — and thus reliable dividend payments, too.

The flip side of stability in PG is that revenue and profits haven’t been growing at a breakneck pace, but low-risk investors might see that as a plus.

#6: General Electric

GeneralElectric Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 3.5%
Performance So Far in 2012:
+8%

General Electric (NYSE:GE[12]) might forever be tarnished in the minds of some dividend investors after slashing its payout by two-thirds during the financial crisis. While the quarterly dividend remains about half of what it was — at just 17 cents vs. 31 before the market meltdown — the subsequent flop in GE stock and recent moves to increase payouts have managed to result in a very respectable yield of 3.5%.

GE admittedly has its near-term troubles, as evidenced in February by poor General Electric earnings[13] (we’ll see what’s in store again when GE reports April 20). But that doesn’t seem to be deterring investors, who have bid it up nicely so far in 2012. That’s because while the stock might be seeing some headwinds, it has some long-term potential as its banking arm continues to improve and as its energy and infrastructure segment continues to grow.

GE isn’t going to return to pre-Lehman valuations anytime soon. But it’s definitely stable and on the mend — paying a healthy dividend all the while, too.

#5: Johnson & Johnson

JohnsonJohnsonLogo e1282585796958 Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 3.6%
Performance So Far in 2012:
-2%

Johnson & Johnson (NYSE:JNJ[14]) has raised dividends for 49 years in a row — almost as impressive as the aforementioned P&G. Over the past decade, the company has managed to boost distributions by over 12% per year — all while delivering a headline yield of about 3.6% right now.

The biggest dividend driver isn’t prescription drug offerings like vaccines, but consumer health operations thanks to products like Band-Aid and Tylenol.

Revenue admittedly has been a bit stagnant at J&J during the past few years, and quality control issues have held back the stock. However, earnings per share continue to improve and a new leader in former Army Ranger Alex Gorsky[15] might help heal J&J’s image.

And if you believe projections, Johnson & Johnson could see a stunning 48% jump in earnings per share for fiscal 2012 compared with fiscal 2011. Throw in the fact that unlike other big pharma stocks, Johnson & Johnson is a diversified company with plenty of consumer offerings that will avoid painful patent expirations, and you have another plus.

#4: Pfizer

pfe Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 4%
Performance So Far in 2012:
+1%

Pfizer (NYSE:PFE[16]) outperformed the market nicely in 2011 with one of the best returns in the entire Dow Jones[17] — 23% in gains, to be precise. But like so many high-fliers with high yield, Pfizer has hit a speed bump in 2012 as shares have lagged the strong rally on the rest of Wall Street.

Part of that is more than just sector rotation, too. Pfizer faces the same challenge that persists across all of Big Pharma — looming patent expirations, challenges from generic medications and the frantic race to lock up patients in emerging markets.

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 $29 billion in cash[18] as of its last earnings report. Even if revenue hits a hiccup, as it did in fiscal 2011 when it slid from $67.8 billion to $67.4 billion, the cash is there to preserve this juicy dividend.

#3: Merck

MerckLogo e1282588089406 Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 4.4%
Performance So Far in 2012:
+1%

Merck (NYSE:MRK[19]) is very similar to Pfizer in many ways. It barely is in the black year-to-date, and lagging the market. It has a dividend of more than 4%. It, too, faces patent expirations and is hoping its pipeline will step up to fill the void.

There obviously is not breakneck growth in pharmaceuticals, at least on a share appreciation basis. But the continued roll-in of the $41 billion Schering-Plough buyout from a few years ago surely will provide new opportunities for Merck. At the very least, it ensures the company won’t fade away.

And like its cohort Pfizer, MRK is sitting on a huge war chest. Some $13.5 billion in cash and $1.4 billion in short-term investments keeps this pick pretty safe when it comes to paying the dividends.

#2: Verizon

VerizonLogo e1282588394281 Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 5.3%
Performance So Far in 2012:
-6%

Verizon (NYSE:VZ[20]) remains the leading wireless telecom provider in the U.S. by subscriptions, thanks to the failed AT&T and T-Mobile merger[21]. 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. Like many low-risk dividend stocks, this is a double-edged sword since there may not be any huge growth opportunities for the entrenched telecom. But strong cash flow generation and the lack of any real competition from anyone other than AT&T (NYSE:T[22]) means this telecom stock is a stalwart that’s here to stay.

You may not get rich riding the shares higher. But you could do worse than a 5% annual return via dividends.

#1: AT&T

ATTLogo Top 10 Dow Dividend Stocks for Retirement InvestorsCurrent Dividend Yield: 5.7%
Performance So Far in 2012:
2%

One of the biggest stories in 2011 was that AT&T (NYSE:T[22]) tried to leapfrog rival Verizon in the wireless market via a buyout of T-Mobile. But regulators ran interference, and AT&T abandoned its bid[23]. Don’t think that means the biggest dividend payer in the Dow Jones Industrial Average should be cut loose from your portfolio, though. With a dividend yield of about 5.7%, this is a heck of an income play.

The story is the same for AT&T as Verizon, where a strong balance sheet and its entrenched status is offset by the lack of growth and the highly regulated nature of the telecom sector (case in point: the squashed T-Mobile bid).

But if you’re looking for a big dividend payer that will keep throwing off cash for decades, AT&T might be your best bet in the whole Dow Jones Industrial Average.

Jeff Reeves[24] is the editor of InvestorPlace.com. Write him at editor@investorplace.com[25], 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.

Endnotes:
  1. haven’t really been all that impressive in 2012,: http://investorplace.com/2012/04/dont-write-off-high-dividend-stocks-yet-etf-vig-dvy/
  2. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM
  3. raise its dividend in March: http://investorplace.com/2012/03/financials-pump-up-payouts-after-stress-test/
  4. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  5. DD: http://studio-5.financialcontent.com/investplace/quote?Symbol=DD
  6. CVX: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVX
  7. KFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=KFT
  8. split into two separate companies: http://investorplace.com/2012/02/top-10-dow-jones-dividend-stocks-2/2011/08/kraft-spinoff-buyout/
  9. Mondelez: http://investorplace.com/2012/03/bye-bye-kraft-hello-mondelez/
  10. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  11. in a recent article on InvestorPlace.com: http://investorplace.com/2012/04/2012s-best-dividend-stocks-look-familiar-pep-pm-mo-jnj-pg/
  12. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE
  13. General Electric earnings: http://investorplace.com/2012/02/top-10-dow-jones-dividend-stocks-2/2012/01/general-electric-ge-stock-bad-short-term-trade-good-long-term-buy/
  14. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ
  15. a new leader in former Army Ranger Alex Gorsky: http://investorplace.com/2012/02/5-ways-alex-gorsky-can-heal-ailing-jj/
  16. PFE: http://studio-5.financialcontent.com/investplace/quote?Symbol=PFE
  17. best returns in the entire Dow Jones: http://investorplace.com/2012/02/top-10-dow-jones-dividend-stocks-2/2011/12/best-worst-dow-stocks-201/
  18. has $29 billion in cash: http://investorplace.com/2012/02/top-10-dow-jones-dividend-stocks-2/2011/12/acquisitions-strong-sales-keep-pfizer-dividend-strong/
  19. MRK: http://studio-5.financialcontent.com/investplace/quote?Symbol=MRK
  20. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  21. failed AT&T and T-Mobile merger: http://investorplace.com/2012/02/top-10-dow-jones-dividend-stocks-2/2012/01/failed-att-bid-gives-t-mobile-new-life/
  22. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  23. AT&T abandoned its bid: http://investorplace.com/2012/02/top-10-dow-jones-dividend-stocks-2/2012/01/top-10-dow-jones-dividend-stocks/2011/12/att-t-stock-t-mobile-merger-qualcomm-verizon/
  24. Jeff Reeves: http://investorplace.com/author/jeff-reeves/
  25. editor@investorplace.com: mailto:editor@investorplace.com

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