Earnings season is upon us and the stock market continues to hang tough despite the slowdown in top-line revenue finally weighing on profits. If forecasts hold true, this will be the first decline in S&P 500 earnings on the whole since 2009.
And looking forward, the next round of earnings could be even worse.
However, while growth investors might be a bit out of luck, there is a lot to be said for a strategy that relies on stable names with big dividends. These companies haven’t just seen nice share appreciation during the market rally, but also have the ability to hang tough when things go south thanks to bulletproof operations and the safety of dividends to keep stockholders from running to the exits.
Whether you’re looking for a low-risk way to muddle through earnings season or whether you’re looking for a safe place to park your cash because you fear a looming crash due to Europe or the fiscal cliff, high-yield dividend stocks are one of your best bets right now.
These top 10 Dow dividend stocks are some of the best picks out there, with all 10 stocks boasting a dividend yield of 3% or better. Take a look:
Current Dividend Yield: 3.1%
Performance So Far in 2012: +8% (vs. +11% for the Dow Jones Industrial Average)
Chevron (NYSE:CVX) is smaller than Exxon Mobil (NYSE:XOM), but it’s hardly an also-ran in energy. CVX has a market cap of about $225 billion, making it one of the 10 largest corporations that trade on American stock exchanges. The oil major also generates more than $200 billion a year in revenue, placing it on the top 10 list of U.S.-listed corporations on that front, too.
Oil stocks like Chevron can be cyclical, but to some that makes CVX a good investment now — since the prospect of brighter days (or at least stronger energy demand) in 2013 could make this a prime time to buy. There’s incentive to get in a bit early, too, since baseline demand is strong. Also, geopolitical unrest in the Middle East also ensures that crude won’t be dipping significantly in the near-term, even if energy needs soften slightly. A pretty consistent crude oil pricing in the ballpark of the low $90s per barrel since July is encouraging.
So why not collect a hefty dividend of roughly 3.1% while you wait for a cyclical recovery to lift Big Oil stocks like Chevron? Seems like a no-brainer for investors looking for a low-risk way to enter the market right now and earn dividends while they wait.
Chevron reports earnings Nov. 2, so watch closely if you’re planning to invest. Also worth noting is the massive war chest of $21.5 billion in cash that implies Chevron could be plotting a huge buyout soon.
#9: Procter & Gamble
Current Dividend Yield: 3.2%
Performance So Far in 2012: +4%
Procter & Gamble (NYSE:PG) is one of the biggest names in dividend investing, so I’m not uncovering some hidden gem here. But it’s worth noting that P&G has long-term potential despite the fact that many investors think it has fallen out of fashion.
Admittedly, PG stock hasn’t doing much on a share appreciation basis year-to-date — but it is up about 15% since the end of June. Procter & Gamble CEO Bob McDonald has a big long-term plan that involves fighting rising commodity costs and finding growth overseas. It also just posted pretty strong Q4 earnings to send shares up about 13% since July 1, so there are signs of life.
You also can’t get more bulletproof than brands like Gillette, Pampers and Duracell. These consumer products provide reliable revenue across rough economic times — and thus reliable dividend payments, too.
Longer-term, there’s a chance that Procter & Gamble will benefit very nicely from changing currency exchange rates. A strong dollar and weaker euro have weighed on the earnings of this multinational. But if that dynamic changes, it could boost profits.
And if you’re a bear looking to preserve capital? Well, consumer staples are a great place to hide out.
P&G reports earnings Oct. 25.
#8: Johnson & Johnson
Current Dividend Yield: 3.4%
Performance So Far in 2012: +10%
Johnson & Johnson (NYSE:JNJ) just reported earnings that were better than expected, though profit indeed dropped. Still, beating expectations was enough to lift JNJ shares, which have rallied 6% in five days thanks to a strong report.
But this is a dividend stock list, so investors looking for yield should pay attention to some other important news — namely, that J&J has raised distributions for 50 years in a row and has a 10-year dividend growth rate of 12.4% per year — making it one of the most reliable payers on Wall Street and one of InvestorPlace‘s Dependable Dividend Stocks. In July, JNJ pushed its payout to 61 cents a share — almost triple the 20.5 cents quarterly it paid back in 2003.
Of course, J&J has hit some headwinds thanks to quality control issues, product recalls and questions about management. But a new Johnson & Johnson CEO at the helm is hoping to change all that in the months ahead.
A plus while you wait for a corporate turnaround is the nice 3.4% dividend yield. And unlike some Big Pharma stocks that pay nice yields but might be gutted by patent expirations, JNJ consumer health offerings like Band-Aid and Tylenol provide its steadiest revenue stream beyond vaccines and prescription medical products.
Current Dividend Yield: 3.4%
Performance So Far in 2012: +10%
E.I. du Pont de Nemours & Co. (NYSE:DD), colloquially known just as DuPont, is another stock for bulls expecting a cyclical recovery. It is a chemicals giant with more crazy plastics and coatings than you can shake a synthetic stick at, meaning that DuPont revenue is closely tied to business spending. Products include including Tyvek house wrap, Teflon non-stick coatings and stretchy Lycra synthetic fabrics.
The diversity of these products gives DD both a way to stay stable in tough times and the opportunity to tap into growth when the economy recoveries. Obviously, these items aren’t as sexy as a slick smartphone or a luxury automobile. But DD has a broad reach, so it doesn’t really have to worry about one sector or one set of economic data points. This makes it a great long-term investment … though admittedly, if you don’t believe in a cyclical boom on the horizon, there might be short-term pain for chemicals stocks like DD.
The combination of reach and stability means reliable revenue — and thus, reliable dividends. That’s one reason it could be considered a stock to hold long enough for your grandkids to get a piece of the shares. And as InvestorPlace’s Dan Burrows pointed out in August, “The stock is trading 17% below its own five-year average on a forward earnings basis, while ROE is a very shareholder-friendly 30%.”
DuPont reports earnings Oct. 23.
Current Dividend Yield: 3.4%
Performance So Far in 2012: +20%
Pharma stocks are mainstays for dividend investors, and Pfizer (NYSE:PFE) is one of the favorites. For instance, amid the quest for yield last year, the stock outperformed the market nicely in 2011 with one of the best returns in the entire Dow Jones in 2011 — 23% in gains, to be precise.
There were some setbacks for PFE earlier this year, such as in August when it abandoned a joint venture with J&J to developer an Alzheimer’s drug as poor results hit home. And of course, patent expirations hurt — most notably the recent departure of blockbuster Lipitor into the realm of generic competition.
But thanks in part to good numbers lately, PFE is now outperforming the broader Dow Jones Industrial Average so far in 2012. A big catalyst has been news of a recent animal health spinoff, as well as a big leukemia drug approval in September. Shares are up more than 8% in the past 30 days alone.
And big-picture, you can’t get more low-risk than healthcare stocks. People buy drugs no matter what the economy is like. Also, it’s hard to argue with the growth potential looming in a huge demographic shift provided by aging baby boomers. Thus, Pfizer remains a great long-term dividend play despite some challenges.
Pfizer reports earnings Oct. 30.
Current Dividend Yield: 3.5%
Performance So Far in 2012: +17%
Merck (NYSE:MRK) is similar to Pfizer (NYSE:PFE) in many ways — namely that it faces patent expirations, it hopes its pipeline can step up to fill the void, and it pays a huge dividend.
Except Merck has soared in 2012 because, unlike Pfizer, it hasn’t taken as hard a hit on its pipeline and has seen big successes in up-and-coming treatments to replace the ones it will lose to generic competition. A new osteoporosis drug looks very promising for the drugmaker, and investors have piled in since July, driving up shares about 15% since then and up 46% in the last calendar year!
Plus, the continued roll-in of the $41 billion Schering-Plough buyout from a few years ago will provide new opportunities for Merck, or at least ensure the company won’t fade away.
MRK also is sitting on a huge war chest. Some $17.5 billion in cash and short-term investments keeps this pick pretty safe when it comes to writing dividend checks.
Merck reports earnings Oct. 26.
Current Dividend Yield: 3.6%
Performance So Far in 2012: -42%
You might be surprised to see a tech stock like Hewlett-Packard (NYSE:HPQ) so high on this list — and even more shocked to see the big headline yield!
But tech stocks are increasingly paying dividends (I’m looking at you, Apple (NASDAQ:AAPL), and Dow components are no exception. In fact, in addition to (spoiler alert!) No. 3 Intel (NASDAQ:INTC), Dow components Cisco (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) both barely missed the cut with dividends of about 3% apiece.
Hewlett-Packard has indeed increased its payouts, from 8 cents a quarter in early 2011 to 13 cents currently … however, HPQ has more so been a tale of gut-wrenching declines that have inflated its yield recently. After all, the most common way for a $30 stock to double its yield is to become a $15 stock — not to start paying twice the dividends. So keep that in mind.
There are major problems at Hewlett-Packard that should give all investors pause — most notably the ugly HP analyst meeting where Meg Whitman essentially said, “We are in it deep, but gimme five years and I’ll fix things. Be patient!”
If you believe in the turnaround, well, the big yield could give you incentive to tread water until HP moves in the right direction. But it’s a risky play despite the big yield.
HP reports earnings on Nov. 20.
Current Dividend Yield: 4.1%
Performance So Far in 2012: -10%
Another tech stock at the top of the list is Intel (NASDAQ:INTC). But unlike HP, the dividend yield is a product both of increasing distributions — its recent bump from 21 cents to 23 cents a quarter boosted the yield — and unfortunate share price declines. But if you’re looking for a tech turnaround, INTC might be better positioned than HP is right now.
First, the bad: The company recently was bumped from Warren Buffett’s holdings in Berkshire Hathaway (NYSE:BRK.B, BRK.A). No surprise why as the post-PC age is weighing on shares, evident most clearly in a fall for both profit and revenue this week in its earnings report.
However, it’s hard to bet against INTC in the long term. A huge yield makes this Dow component and top dividend payer attractive, but it’s also very much at the heart of the information age. Yes, Intel is suffering as PC sales dwindle — but as the world’s largest semiconductor manufacturer, it’s foolish to think that because laptops are becoming obsolete, this company is too. INTC has its fingers in many electronic pies, and is making a big push into mobile that certainly will pay off later. Intel is focusing on mobile semiconductors and Ultrabook sales to fill in any lost ground.
It’s also worth noting that INTC, like others on this list, is a cyclical stock — without consumer demand for electronics or businesses buying new hardware, INTC is going to see headwinds. That means you might want to get in now and enjoy the nice dividend in anticipation of a longer-term recovery and mobile revenue stream.
Current Dividend Yield: 4.5%
Performance So Far in 2012: +15%
Verizon (NYSE:VZ) has been labeled a sleepy telecom stock. Except that since this spring, VZ shares popped significantly — some 23% in six months!
Part of the demand for shares is, obviously, the dividend. Verizon is one of the most secure plays out there since it remains the leading wireless telecom provider in the U.S. by subscriptions and gets 50% of its revenue from wireless subscribers. 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 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 because there might 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) means this telecom stock is a stalwart that’s here to stay.
In the short-term, things are also looking bright thanks to Verizon’s relatively new Share Everything plan boosting earnings. This week, the telecom stock posted a massive number of new devices on its network, boosted by Share Everything plan’s debut this summer that made it cheaper for households to add wireless service to tablets and laptops. Specifically, Verizon Wireless added a net 1.5 million devices — proving this company knows how to remain dominant in a mobile age even if cable TV and phone are fading technologies.
Current Dividend Yield: 4.8%
Performance So Far in 2012: +24%
One of the biggest stories in 2011 — in case you were living under a rock — was that AT&T (NYSE:T) tried to leapfrog rival Verizon (NYSE:VZ) in the wireless market via a buyout of T-Mobile. But regulators ran interference, and AT&T abandoned its bid.
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%, this Dependable Dividend Stock is a heck of an income play. And with a 20% surge in 2012, it’s showing strong investment potential on capital-gains basis alone.
The story is the same for AT&T as Verizon, where a strong balance sheet and its entrenched status are offset by the lack of growth and the highly regulated nature of the telecom sector (case in point: the squashed T-Mobile bid). AT&T admittedly fell short on the top line in its previous recent report, so there is indeed risk and you must watch the next report closely. But it’s not like this company is in any danger of losing its dominance anytime soon.
Admittedly, AT&T isn’t “growthy” and won’t deliver massive share appreciation. But if you’re looking for a big dividend payer that will keep throwing off cash for decades, AT&T might be the best bet in the Dow.
AT&T reports earnings Oct. 24.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.