by Dan Burrows | November 25, 2013 12:35 pm
Stocks are at all-time highs, and the blue-chip Dow Jones Industrial Average just topped 16,000 for the first time ever. But as wonderful as that is for your portfolio on a price basis, it makes a difficult hunt for yield even harder.
As prices go up, yields come down. So as generous as payouts from companies in the Dow may be, the yield on the index has come down hard during this epic run. The dividend yield on the Dow Industrials currently stands at 2.1%; a year ago, it was 2.7%.
Among the most appealing attributes of the 30 stocks in the Dow is that they’re all essentially battleships. They might not have the screamingly highest yields of any stock in the market, but you know each of these dividend stocks are almost certainly good for their payouts.
Fortunately for new money, the top 10 Dow dividend stocks all throw off respectable yields, ranging from 2.9% to 5.1%. A concentrated equity income portfolio of these 10 blue-chips names would still offer a decent income stream with defensive and diversity, too.
Here are the top 10 Dow dividend stocks by yield for November:
Dividend Yield: 2.9%
YTD Performance: +37%
Neither the chemicals sector nor agricultural stocks have really been on fire this year, but don’t tell that to DuPont (DD). The stock is up 37% so far in 2013, beating the S&P 500 by nearly 11 percentage points.
Of course, that run-up in price has shaved something off the dividend yield. Back in June, DD was yielding 3.4%. Anyone who has been along for the ride won’t complain, but new money will have to learn to live with the sub-3% yield.
It’s also a concern that the rising stock price is starting to make the valuation look a little stretched, with a forward price-to-earnings multiple (P/E) of 14 but a long-term growth forecast of just 8%.
Dividend Yield: 3%
YTD Performance: +41%
PC sales are a slowly melting iceberg, Windows Phone is an also-ran in the mobile competition, the new operating system has hardly caught fire and CEO Steve Ballmer is out.
And yet, Microsoft (MSFT) is up 41% year-to-date.
As easy and fun as it may be, you just can’t count MSFT out. As recently as June, the stock didn’t even make the list of top Dow dividend payers. Now, it’s at No. 9, throwing off a more-than-respectable yield of 3%.
Plus, with a forward P/E of 13, you still can pick up MSFT at a reasonable valuation, given the 9% growth forecast. Shares could enjoy even more multiple expansion if the company taps a new CEO who excites the Street.
Dividend Yield: 3%
YTD Performance: +29%
When big pharmaceutical companies are confronted with expiring patents on their blockbuster drugs, they have to do something to keep shareholders happy.
Cost-cutting is one way Pfizer (PFE) is making things right, but most investors probably feel better knowing it still throws off a 3% yield — and still has managed to outpace the S&P 500 this year by a couple percentage points.
Not bad for a dividend stock that increasingly looks like a bond in drag.
The long-term growth forecast stands at less than 3% a year for the next five years or so. Ordinarily, that would make the forward P/E of 14 look like a bit of a stretch, but between the dividend and $10 billion share repurchase program, new money looks to get its money’s worth.
Dividend Yield: 3.2%
YTD Performance: +9%
You know technology stocks have really grown up when you start to see a few of them make the list of top dividend stocks.
Cisco Systems (CSCO) had a terrible third quarter, pummeling shares that were underperforming the broader market, anyway. The stock is now up just 9% on the year, but that has kept the dividend for new money from shrinking, at a still-appealing 3.2%.
Global information technology spending remains depressingly weak, and that will weigh on shares of Cisco for the foreseeable future. In the meantime, CSCO trades at a bargain-basement 10 times forward earnings, and the company added another $15 billion to its stock repurchase program.
Between that and the dividend, new money can afford to wait for IT spending — and CSCO — to bounce back.
Dividend Yield: 3.2%
YTD Performance: +14%
Between oil prices going nowhere to down and natural gas prices hitting record lows, it has been a tough year for energy companies, and integrated oil and gas giant Chevron (CVX) is no exception.
The stock is up just 14% in 2013, lagging the broader market by about 12 percentage points. Fortunately, the 3.2% yield on the dividend helps mitigate some of the pain. Add in those payouts to the share performance, and the total return comes to more than 18% for the year-to-date.
Eventually global economic growth should pick up enough to help boost energy prices. Until then, investors can pick up CVX for about 11 times forward earnings and sit on the dividend and share repurchase program. Indeed, CVX bought back more than $1 billion in the third quarter alone.
Dividend Yield: 3.3%
YTD Performance: +12%
Everybody is indisputably not lovin’ it when it comes to McDonald’s (MCD) this year. The world’s biggest burger chain has been stumbling with disappointing sales amid increased competition and changes to its dollar … er, value menu.
MCD is up just 12% for the year so far, lagging the broader market by a wide margin. If there’s a bright spot to that underperformance, it has the dividend throwing off a healthy 3.3% and the stock doesn’t look particularly expensive.
MCD trades essentially in line with its own five-year average forward P/E, according to data from Thomson Reuters Stock Reports. Not a steal, but not overpriced, either.
Like other laggard blue chips, MCD returns enough cash to shareholders through dividends and buybacks to make it an attractive equity income holding until its fortunes improve.
Click to EnlargeDividend Yield: 3.5%
YTD Performance: +20%
Just as rival Pfizer got hooked on Lipitor, Merck (MRK) became addicted to Singulair, and the weaning process has been painful. The blockbuster allergy and asthma medication was the 11th-best-selling drug in the world until Merck lost exclusive rights to sell it last year and cheaper generics swamped the market.
Shares are up just 20% for the year-to-date, and the valuation looks stretched at 14 times forward earnings when the five-year average is closer to 10. MRK also looks a bit pricey on a trailing earnings basis, and by price/earnings-to-growth (PEG).
But that generous 3.5% yield on the dividend still makes Merck look like a core equity-income holding, especially considering the very low volatility. Indeed, MRK is about half as volatile as the broader market.
Dividend Yield: 3.8%
YTD Performance: +14%
Tech stocks don’t just pay dividends these days — some of them even have bigger payouts than energy companies and banks.
Case in point: Intel (INTC), the chip giant, yields 3.8% — and it might just be poised for another round of growth. The company’s ultra-low power Haswell processor is the brains behind the latest mobile gadgets from Apple (AAPL).
Shares are up just 14% for the year-to-date, and even after factoring in the dividend, INTC’s total return comes to just 19%. That would be great if the broader market had not generated a whopping total return of 29%.
However, INTC still has about $3.7 billion left in its current share repurchase program, and that generous dividend yield makes waiting on a turnaround in sales much easier.
Dividend Yield: 4.2%
YTD Performance: +16%
It’s hard to beat telecom stocks when it comes to dividends, and Verizon (VZ) is no exception, with a yield of 4.2%.
True, shares are up just 16% for the year-to-date, but then, you don’t buy this telecom giant for price appreciation — you buy it for the income stream.
Meanwhile, VZ looks like a relative bargain. It actually trades at a slight discount to its own five-year average forward P/E, according to data from Thomson Reuters Stock Reports.
Perhaps best of all, after a decade of trying, Verizon finally bought out Vodafone’s (VOD) stake in the cash cow that is Verizon Wireless. That will help VZ invest in its infrastructure and services — and keep the dividend stream flowing.
Dividend Yield: 5.1%
YTD Performance: +5.4%
As we noted recently, the reigning income champ of the Dow Jones Industrial Average has a large enough payout to also land it among the highest-yielding dividend stocks in the S&P 500.
AT&T’s (T) stock hasn’t done much this year — it’s up just 5.4% — but again, you don’t own a telecom for its price performance. Valuation isn’t bad, either, as shares are essentially in line with their own five-year average on a forward earnings basis.
T’s not cheap, but neither does it look particularly expensive.
AT&T hasn’t given up on growth either. The telecom giant has made no secret of its desire to do a big deal in Europe. So don’t be surprised if at some point — maybe soon — AT&T makes a huge acquisition splash across the pond.
Until then, enjoy its 5%-plus payout.
Read More: 5 Hidden Dividend Gems to Buy
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