The Top 10 Dow Dividend Stocks for June

by Kyle Woodley | June 20, 2013 9:19 am

The Top 10 Dow Dividend Stocks for June

stockoftheweek The Top 10 Dow Dividend Stocks for June[1]Well, at least one good thing came from Ben Bernanke’s thwacking of Wall Street yesterday: A number of blue-chip dividend stocks are now sporting slightly more attractive yields for investors not yet long those companies.

In fact, every last stock in the Dow Jones Industrial Average has a sweeter percentage payout, as each of the index’s 30 components was sold off following Bernanke’s remarks indicating possible tapering of quantitative easing in mid-2014.

Of course, if you’re an income-minded investor, you’re not messing around with the paltry yields of stocks like Bank of America (BAC[2]) — even if its yield got juiced to a whopping 0.3%. No, you’re more likely to be interested in this top 10 list, which features nothing but companies boasting at least a 3 on the other side of their dividend decimal points.

You also should love the overall size and security of these multinational market leaders, as their entrenched businesses offer both security in knowing that their stocks aren’t going to just drop off a cliff, as well as a constant stream of cash that gets funneled back to you through generous quarterly payouts.

So which Dow dividend stocks topped this month’s list? Read on to find out:

#10 (tie): Johnson & Johnson/Procter & Gamble

JNJPG The Top 10 Dow Dividend Stocks for JuneCurrent Dividend Yield: 3.1%
JNJ Year-to-Date Performance: +21% (vs. +15% for the Dow)
PG YTD Performance: +14%

These two companies have plenty in common: They’re both parents of numerous well-known brands like Johnson & Johnson’s (JNJ[3]) Band-Aid and Tylenol and P&G’s (PG[4]) Duracell and Tide. They’ve both ridden early-year runs to double-digit gains so far this year. They both have dividends above 3%. They both love ampersands.

Dorky English humor aside, the success of JNJ and PG goes right along with what has been a great year for healthcare and consumer staples stocks.

Procter & Gamble is up big in 2013, though its momentum has slowed of late. Its most recent earnings report in April[5] featured Street-beating income, but revenue that improved only 2% and missed analyst estimates, as well as weak Q2 estimates. Then, a few weeks ago, the company announced that it was booting CEO Bob McDonald in favor of former P&G chief A.G. Lafley — who proceeded to shake up the org chart[6] not too long thereafter.

Speaking of new CEOs: Alex Gorsky is getting his bearings and now has more than a year under his belt at JNJ. Johnson & Johnson also reported something of a mixed financial bag back in April, improving sales by 8.5% year-over-year but suffering earnings that were lower by 10.6%. More recently, the company has looked to M&A to boost its fortunes, picking up Aragon Pharmaceuticals for exposure to its trial-stage prostate cancer treatment, among other cancer drugs.

Still, both deliver in the dividend department, with each yielding 3.1% as of this writing. And those are payouts you can take to the bank. Both companies are members of our Dependable Dividend Stocks[7] list thanks to decades of consistently improving their quarterly checks.

#9: McDonald’s

McDonalds185 The Top 10 Dow Dividend Stocks for JuneDividend Yield: 3.12%
YTD Performance: +12%

Much like JNJ and PG, fast-food behemoth McDonald’s (MCD[8]) started off 2013 hot, but the burger chain has since been treading water for months.

Alongside reporting a Q4 2012 earnings beat early in the year, McDonald’s warned about slower sales in Q1 2013 — and that’s just what it got. In April, it reported revenues that improved slightly YOY to $6.61 billion, and earnings grew just 2%, mostly thanks to share buybacks. Both metrics missed estimates.

MCD’s sales problems have sparked several menu changes, including a new after-midnight menu[9] and the elimination of Angus burgers in favor of new specialized Quarter Pounders[10].

Regardless, McDonald’s still is expected to grow earnings 6% this fiscal year and 9% next, which is plenty robust for a global brand represented in more than 120 countries. Meanwhile, it pays a dividend of 3.1% — fractionally better than PG & JNJ to break the tie — and has kept up payments for 37 consecutive years and running.

#8: General Electric

GeneralElectric The Top 10 Dow Dividend Stocks for JuneDividend Yield: 3.2%
YTD Performance: +14%

General Electric (GE[11]) has a bad name among many income investors thanks to its actions during the financial crisis — namely, it cut its 31-cent dividend back by more than two-thirds, and it also knocked off its share repurchases.

Ever since then, it’s been working to get back into our good graces.

At the end of 2012, GE re-upped its dividend from 17 cents to 19 cents — the fifth increase in three years. More recently, it announced at the end of May that its GE Capital division would be providing the parent with $6.5 billion in dividends[12], which in turn would help power GE’s dividend as well as a healthy repurchase program.

Meanwhile, General Electric plans to shrink its GE Capital assets to reduce its reliance on the division. The company’s also been expanding its energy business, including an April acquisition of Lufkin Industries[13], which manufactures pump lifts used in energy production, as well as pumps and rig completion equipment. The $3.3 billion buy of Lufkin puts GE’s tally at nearly $11 billion in energy-related M&A since 2007.

With buybacks set to buoy earnings growth and more dividend improvement seemingly in the cards going forward, it’s getting at least a little easier to forgive GE’s past income transgressions.

#7: Pfizer

pfe The Top 10 Dow Dividend Stocks for JuneDividend Yield: 3.3%
YTD Performance: +16%

“Big Pharma” often is spoken in the same breath as “big dividends.” So naturally, that makes Pfizer (PFE[14]) right at home on this list of big-paying dividend stocks.

Earlier this year, Pfizer spun off its animal health division, Zoetis (ZTS[15]) so management could keep a closer eye on the primary pharmaceuticals business. Now, it’s working on closing out its remaining stake, offering shareholders a 5% premium to exchange PFE stock for ZTS[16] — effectively acting as “a multibillion-dollar share buyback” that will help boost EPS, according to Bloomberg.

It could use it. While still well in the black year-to-date and even slightly ahead of the Dow, Pfizer has actually shed a few percentage points since reaching all-time highs in April. Between disappointing earnings, the aforementioned Zoetis spinoff and lowered full-year expectations, things began to slow. Specifically, adjusted Q1 earnings declined from 58 cents per share a year ago to 54 cents, and its full-year earnings are expected to fall in a range of $2.14 to $2.24 instead of a previous forecast for $2.20 to $2.30.

Also in the bad-news department, Pfizer just had to recall three drugs[17] — Prempro, Cleocin and Norpace — because of quality issues.

Pfizer still has a healthy yield of 3.3% thanks to a 2-cent bump-up to its quarterly dividend effective at the beginning of this year, which should help PFE shareholders through shaky times like this.

#6: Chevron

ChevronLogo The Top 10 Dow Dividend Stocks for JuneDividend Yield: 3.3%
YTD Performance: +11%

Supermajor energy stock Chevron (CVX[18]) has been slightly lagging the Dow year-to-date, and is otherwise having a so-so year.

A couple months ago, Chevron reported a 4.5% decline in earnings[19] thanks crude oil prices that descended from triple-digit prices early on in 2013 — a problem plaguing most other oil stocks at that time. It also watched its refinery output sink 38%.

Worse still, analysts on average expect Chevron’s profits to decline this year, from $12.57 per share to $12.41, and only tick back up to $12.51 in the next year — not even reaching 2012 levels.

However, Chevron did up its Q1 output of oil and gas to 2.65 million barrels per day, and it did so without the help of one of its offshore Brazil platforms, which it had to shut because of spills. And more recently, crude oil’s spectacular June — which has brought prices back up around the $98-per-barrel level — offers further hope, though CVX shares haven’t yet been a direct beneficiary.

On the upside, Chevron delivered a nice-sized bonus to investors this spring when it raised its dividend by 9% to $1 per share quarterly. As of current prices, that puts the energy stock’s yield around 3.3%.

#5: DuPont

DuPontLogo e1282585884678 The Top 10 Dow Dividend Stocks for JuneDividend Yield: 3.4%
YTD Performance: +19%

DuPont (DD[20]) sure has picked up since earlier in the year, now easily outpacing the market.

When last we checked, DuPont had suffered a 70% decline in earnings for fiscal 2012′s Q4, and CEO Ellen Kullman warned of 2013 being a “cautious year.”

April’s earnings announcement seemed to ease such worries. DuPont said its Q1 earnings more than doubled thanks to advances in its agricultural unit, as well as the $4.9 billion sale of its performance coatings unit to Carlyle Group (CG[21]). The company also increased its quarterly payout from 43 cents to 45 cents.

However, a week ago, DuPont disappointed Wall Street by announcing it was reducing its first-half and full-year earnings projections thanks to several weather issues, including flooding in the Midwest. DD expects half-year operating earnings to decline by 10%, as opposed to its previously forecast 7% to 9%, and full-year operating earnings are expected to fall around $3.85, which was the short side of a range forecast earlier this year. That prompted a Bank of America analyst to downgrade DD shares from “buy” to “neutral.”

DD still has a solid dividend, as well as a diverse stable of products — ranging from Tyvek house wrap to Teflon protective coatings — but it could be in for a rough few months.

#4: Intel

intel The Top 10 Dow Dividend Stocks for JuneDividend Yield: 3.6%
YTD Performance: +21%

You remember how Intel (INTC[22]) was doomed to a future of slow, steady declines as Apple (AAPL[23]) and Samsung (SSNLF[24]) ushered the world further into the mobile age, pushing out Intel and other PC-tethered stocks?

Well, about that …

Intel has careered it so far in 2013, sitting in first place in InvestorPlace’s Best Stocks of 2013 contest[25] with a 24% total return year-to-date that includes 21% in stock appreciation.

That appreciation came in the face of a not-too-exciting quarterly report in mid-April, with declining profits missing estimates by a penny, and sliding revenues just meeting targets. Its current-quarter forecast was just as lackluster, with a revenue target of $12.9 billion meeting the consensus.

Investors apparently couldn’t care less, as they’ve driven shares up 17% since then.

Part of it might be the promise shown in its Atom mobile chips. Or, as the broader market started to look iffy, Intel’s big, fat dividend began to look a lot more attractive as a source of stability. INTC currently yields 3.6% and has increased its quarterly payout by roughly 65% since 2009. Best of all, it’s about due for another dividend increase, if its past two hikes are any indication.

#3: Merck

MerckLogo e1282588089406 The Top 10 Dow Dividend Stocks for JuneDividend Yield: 3.61%
YTD Performance: +16%

Much like Pfizer, Merck (MRK[26]) is a big-yielding Big Pharma play … just slightly better-yielding than Pfizer.

Merck has improved by 16% year-to-date, but perhaps more surprising is the pharmaceutical company’s move following its early-May earnings report. While the company easily cleared earnings expectations, its profit was actually 14% less than the year-ago period’s. Meanwhile, revenues disappointed after sliding 9%, and the company tempered its 2013 earnings expectations to $3.45 to $3.55 — a difference of 15 cents on both sides of the range.

Those poor numbers were thanks in part to weak pharmaceutical segment sales of several drugs, including Singulair — Merck’s $5 billion asthma drug that went off-patent last year. In the most recent quarter, Singulair sales dropped off a cliff, declining 75% YOY. MRK also experienced slightly sliding sales in hep-C treatment Victrelis, as well as diabetes drugs Januvia and Janument.

However, the company did see traction in vaccines like Zostavax (shingles) and Gardasil (cervical cancer). Also, Merck has been seeing success in its trial-stage drug lambrolizumab[27], which the company hopes to use to treat both melanoma and lung cancer.

And while MRK continues to try to improve its pipeline, investors can sit on a sweet 3.6% dividend, or 43 cents quarterly.

#2: Verizon

VerizonLogo e1282588394281 The Top 10 Dow Dividend Stocks for JuneDividend Yield: 4.1%
YTD Performance: +16%

Verizon (VZ[28]) is America’s top telecom provider — at least when measured by subscriptions — and nearly half of its revenue comes from wireless subscribers. It also provides high-speed Internet (a pretty good business in an increasingly connected country), phone and television service through the FiOS brand.

It’s those kind of services that make VZ very similar to a utility — just like we need electricity and water, people “need” their mobile phones and tablets to work and stay connected.

After an earnings miss at the beginning of the year, VZ beat profit estimates for Q1 2013 when it reported in April, registering a 15% improvement to 68 cents per share to top the Street view by 2 cents. That came thanks to a huge boost in its Verizon Wireless contract numbers, as well as a 15% growth in its FiOS unit’s revenues.

Verizon also is reportedly looking north of the border for growth opportunities; a source told the Globe and Mail that it’s looking to gobble up Wind Mobile, a smaller Canadian telecom.

Meanwhile, VZ’s slow but steady dividend growth has resulted in a current 52-cent payout, good for a yield topping out above 4%.

#1: AT&T

ATTLogo The Top 10 Dow Dividend Stocks for JuneDividend Yield: 5.1%
YTD Performance: +5%

Undefeated for the umpteenth month running, AT&T (T[29]) once again tops the list with a mammoth dividend topping the 5% mark.

AT&T is unsurprisingly much like Verizon – as a telecom in the 21st century, it’s essentially a utility stock that features solid financials and a stable user base. Heck, it even has a little bit of room to grow in the latter respect thanks to its U-Verse cable offerings.

Where it’s seemingly out of room for growth is mobile subscriptions, as it’s mired in a saturated U.S. market where telecoms are grabbing at each other’s users. That’s why it wasn’t all that surprising when rumors surfaced about its interest in acquiring Spanish telecom Telefonica (TEF[30]), which not only services Spain and other parts of Europe, but also gets a huge chunk of its revenues from the more attractive market of Latin America. TEF immediately denied the rumor[31], but it makes plenty of sense for AT&T, which previously was denied a chance by regulators at snapping up No. 4 U.S. telecom T-Mobile U.S. (TMUS[32]).

AT&T is well behind the market in 2013, thanks to an unimpressive Q1 earnings announcement … but the main event is the dividend, which sits at a solid 5.1% and growing. At that rate, investors would be in good shape even if AT&T sat still.

Kyle Woodley is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he was long GE and T individually, and long all 10 ranked Dow dividend stocks via exchange-traded funds. Follow him on Twitter at @IPKyleWoodley.

Endnotes:
  1. [Image]: http://investorplace.com/hot-topics/stock-of-the-week/
  2. BAC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BAC
  3. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ
  4. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  5. most recent earnings report in April: http://www.usatoday.com/story/money/business/2013/04/24/procter-gamble-earnings/2108877/
  6. proceeded to shake up the org chart: http://investorplace.com/2013/06/lafleys-revamps-the-org-chart-to-save-pg/
  7. Dependable Dividend Stocks: http://investorplace.com/dividend-paying-stocks/
  8. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  9. after-midnight menu: http://investorplace.com/2013/06/mcdonalds-after-midnight-menu-adds-breakfast-items-to-mix/
  10. new specialized Quarter Pounders: http://investorplace.com/2013/05/subway-deems-mcdonalds-shameful-shrug/
  11. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE
  12. GE Capital division would be providing the parent with $6.5 billion in dividends: http://investorplace.com/2013/05/ges-cash-cow-makes-a-strong-bull-case/
  13. April acquisition of Lufkin Industries: http://investorplace.com/2013/04/ge-bulks-up-energy-services-with-buy-out/
  14. PFE: http://studio-5.financialcontent.com/investplace/quote?Symbol=PFE
  15. ZTS: http://studio-5.financialcontent.com/investplace/quote?Symbol=ZTS
  16. offering shareholders a 5% premium to exchange PFE stock for ZTS: http://www.bloomberg.com/news/2013-06-19/pfizer-share-swap-for-animal-health-stake-hits-top-limit.html
  17. Pfizer just had to recall three drugs: http://www.nasdaq.com/article/pfizer-recalls-prempro-two-other-drugs-over-quality-issues-20130614-00486
  18. CVX: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVX
  19. Chevron reported a 4.5% decline in earnings: http://investorplace.com/2013/04/big-energy-showdown-chevron-vs-exxon/
  20. DD: http://studio-5.financialcontent.com/investplace/quote?Symbol=DD
  21. CG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CG
  22. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  23. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  24. SSNLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SSNLF
  25. Best Stocks of 2013 contest: http://investorplace.com/best-stocks-for-2013/
  26. MRK: http://studio-5.financialcontent.com/investplace/quote?Symbol=MRK
  27. seeing success in its trial-stage drug lambrolizumab: http://www.4-traders.com/MERCK-CO-INC-13611/news/Merck-Drug-Shrinks-Tumors-in-Melanoma-Patients-in-Study-16921208/
  28. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  29. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  30. TEF: http://studio-5.financialcontent.com/investplace/quote?Symbol=TEF
  31. TEF immediately denied the rumor: http://investorplace.com/2013/06/telecoms-great-dividends-but-their-desperation-is-showing-t-tef-vz-vod/
  32. TMUS: http://studio-5.financialcontent.com/investplace/quote?Symbol=TMUS

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