There is no doubt about it; this is one tough market to read. After what first appeared to be the beginning of a well-deserved pullback in the making in January, buyers have swooped in to buy the dip, and the major indices are once again challenging their recent highs.
After falling below its 50-day moving average last month, the Dow Jones bounced back to regain that level in early February and has been climbing higher ever since. The market was able to find investors that were ready and willing to add to long-side exposure just as many CNBC pundits were starting to question the sustainability of the prevailing uptrend.
However, a rising tide for the market may not lift all boats this year, as it seemed to do in 2013. We have already seen a higher level of volatility over the past month than we have for a while, and in such an economic climate, I recommended that investors concentrate on stable, blue-chip dividend stocks with a long history of paying investors solid, dependable dividends.
For steady and reliable income, the dividend stocks of the Dow are your best bet. These well-established, best-of-breed companies can almost guarantee that their dividends will hit your account each and every pay date.
The top 10 highest-yielding Dow dividend stocks, or “Dogs of the Dow,” pay out sizable yields ranging from 3.09% to 5.63%, and they’re often less susceptible to market downtrends, which makes them ideal holdings when so many investors are on edge.
Here are the top 10 Dow dividend stocks by yield for February:
Top Dividend Stocks #10: Procter & Gamble (PG)
Dividend Yield: 3.09%
YTD Performance: -4.23%
52-Week Return: +4.33%
Procter & Gamble (PG), the age-old household name that produces a plethora of consumer goods that we use everyday, is a great example of the kind of solid dividend stocks I’m talking about. The company has been increasing its dividend payouts every year for 57 years, and the current quarterly distribution now stands at 60 cents per share.
Although the rate at which PG has increased its distributions has been dropping recently, the pace has been fast enough to keep up with the rising share price, and the stock maintains a steady dividend yield that fluctuates right around 3%. PG was just barely left off of last month’s list of Dow dividend stocks, but the stock’s recent decline has pushed the dividend yield back up to 3.1%.
However, the valuation has been stretched for a while now, even after falling from the all-time high of $85.82 it made back in November. Its current estimated 2014 P/E ratio stands at about 18.5, which is a bit concerning. Earnings growth is projected at about 4% for the first half of 2014, but analysts predict that could rise to 11.44% over the next three years. For those investors reluctant to wait for growth, the $2.40 annual payout should serve as an incentive to own shares of this leader among dividend stocks.
Top Dividend Stocks #9: Merck (MRK)
Dividend Yield: 3.14%
YTD Performance: +11.95%
52-Week Return: +35.91%
Whereas a number of other dividend stocks on our list have fallen so far this year, Merck (MRK), the global provider of health care products and services, has been on a tear recently. The stock has gained almost 12% year-to-date, far outpacing the major averages and other dividend stocks, and it now carries a dividend yield of 3.1%.
MRK disappointed in its latest quarterly report, but that didn’t seem to matter to the Street. The shares gapped higher even as the company reported earnings per share that missed expectations as well as annual net income that was down almost 29%.
In an effort to streamline their business, Merck announced last month that it intends to sell its consumer brands division. The segment represents only a small portion of MRK’s overall revenues — sales were just $1.9 billion last year — but analysts estimate the deal could be worth as much as $10 billion.
While sales of its leading Singulair allergy and asthma medication have declined significantly since the company lost its exclusivity on the product, investors are more enthused about Merck’s future cancer-treatment and immunotherapy prospects, which should benefit investors, patients and the company alike. However, regardless of what happens in the future, shareholders will be earning an annual payout of $1.76 for their vote of confidence.
Top Dividend Stocks #8: Pfizer (PFE)
Dividend Yield: 3.31%
YTD Performance: +2.71%
52-Week Return: +18.35%
In our last installment of the top Dow dividend stocks, Pfizer (PFE) took the No. 5 spot. At the time, the stock was trading under $30. But after a 5% run higher for the stock, PFE’s yield has fallen a bit. With the shares now trading back around $31.50, the dividend yield stands at a still-respectable 3.3%.
The move higher came after Pfizer beat earnings estimates for the third straight quarter. EPS were 56 cents, which was an increase of 22% over the same period a year ago. Although revenues declined during the quarter, the $13.6 billion reading managed to beat estimates.
Despite the loss of exclusivity rights for a number of its best-selling products, including the cholesterol drug Lipitor and its flagship Viagra pill, PFE is projecting sales to be between $49.2 billion and $51.2 billion in 2014.
The company’s share buyback program contributed in part to the positive results. PFE repurchased $16.3 billion of its own shares in 2013, and announced that it plans to make $5 billion of additional repurchases this year as well. Although Pfizer has lagged some of its sector peers and other dividend stocks lately, it continues to exhibit strong growth prospects, and owners of the stock will also enjoy a $1.04 annual payout going forward.
Top Dividend Stocks #7: McDonald’s (MCD)
Dividend Yield: 3.36%
YTD Performance: -0.6%
52-Week Return: +5.77%
For a long time, McDonald’s (MCD) was a go-to choice for many fast-food consumers. But in recent years, the competition from restaurants that put an emphasis on serving healthier food, such as Chipotle Mexican Grill (CMG) and Panera Bread (PNRA), has translated into weaker same-store sales for MCD.
This is evident in the performance of each company’s share price. While MCD is essentially flat for the year, CMG is up 3.4% in that time and PNRA is up 4.2%. Moreover, rivals Burger King (BKW) and Wendy’s (WEN) are each sporting YTD gains of roughly 14%.
The one thing that separates McDonald’s from the pack, however, is its dividend. The current annual payout of $3.24 per share makes for a solid 3.36% yield. Its competitors’ dividend yields are relatively small by comparison — even nonexistent in the cases of Chipotle and Panera.
Top Dividend Stocks #6: Cisco (CSCO)
Dividend Yield: 3.43%
YTD Performance: -1.32%
52-Week Return: +9.87%
Cisco Systems (CSCO) has moved up several spots on our list of dividend stocks for February, as it now carries a significant yield of 3.43%. After peaking over $26 in mid-2013, CSCO has been trading lower, though it is pretty much flat on a year-to-date basis.
On the bright side, when CSCO reported its fourth-quarter earnings earlier this month, earnings per share came in slightly better than expected — at 42 cents versus the consensus of 41 cents. The company also announced that it would be increasing its quarterly distribution by 12%, from 17 cents per share to 19.
Cisco has underperformed the S&P 500 over the course of the last year, as have many dividend stocks, but CSCO appears to be fairly cheap, with a forward P/E ratio of just 12.4. Management stated that they expect a decline in sales of between 6% and 8% for the current quarter, but for those investors that are willing to wait, CSCO is willing to pay you an annual dividend of 76 cents for your patience.
Top Dividend Stocks #5: Chevron (CVX)
Dividend Yield: 3.49%
YTD Performance: -8.33%
52-Week Return: 1.47%
Kicking off our top 5 dividend stocks, Chevron (CVX) recently became the center of some negative attention after a worker was killed by an accident at one of CVX’s natural gas drilling rigs in Pennsylvania.
If that wasn’t bad enough, the company then created a media frenzy when, in a PR move to compensate the community for the tragedy that occurred, it offered coupons for a free pizza and bottle of soda to citizens of the affected town.
Although the move was clearly made in poor taste and executed without proper judgment, the event has had little effect on shares of CVX. After posting a 2013 return of more than 17%, the stock got off to a bumpy start this year. In fact, CVX started trading lower more than a month before the term “pizza apology” was first uttered.
The decline from the $125 area began back in January when CVX forecast that its fourth-quarter numbers would likely miss expectations, which is exactly what happened. Chevron posted a massive 32% year-over-year decline in earnings, as well as quarterly revenues that were down almost 4% from the same quarter a year earlier.
However, for those long-term investors looking to buy the dip, the good news is that the company pays out a very solid dividend yield of 3.5%. And despite the recent incident, Chevron stands to benefit greatly from the collection of the vast amount of natural gas that can be found beneath American soil.
At current levels, you can pick up shares of CVX at about 10 times forward earnings and capture the impressive $1.00 payout every quarter for some additional income. That’s pretty cheap valuation to pay for one of the top dividend stocks out there.
Top Dividend Stocks #4: General Electric
Dividend Yield: 3.50%
YTD Performance: -10.17%
52-Week Return: +10.75%
Since the height of the financial crisis, at which point General Electric (GE) cut its dividend for the first time since 1938, the company has been steadily regaining investors’ trust through increased distributions. Those increases have helped keep it on our list of top dividend stocks.
GE slashed its dividend to just 10 cents back in 2009, a 68% decrease from the previous 31 cents per share. Many investors lost confidence and sold off their shares, but the stock has more than doubled since then. In fact, if you happened to buy the shares when they bottomed out around $7, you’d be sitting on a triple-digit total return, including $2.86 in dividend income per share.
Although GE has come down a decent amount in 2014, there are still some encouraging signs for potential investors. The company has reported increased earnings per share for two quarters in a row, from 35 cents in Q2 2013 to 53 cents in the latest quarter, and the 53-cent EPS reading marked an increase of almost 20% over the same quarter a year earlier. Additionally, there has been significant growth in GE’s aviation segment, in which profit margins have also increased by 20% over the last year.
The stock is attractive for its current payout as well, as GE sports a handsome dividend yield of 3.53%. At present, this seems to be one of those rare dividend stocks with a combination of growth and yield.
Top Dividend Stocks #3: Intel (INTC)
Dividend Yield: 3.64%
YTD Performance: -4.59%
52-Week Return: +25.04%
Intel (INTC) kicks off our top 3 dividend stocks, and is one of the leaders in innovating technologies that are used in myriad computing applications around the world. However, as PC sales have slowed, so has the performance of INTC shares.
Last month, the company reported earnings per share that missed estimates by one penny and provided cautious guidance regarding revenues for 2014. As a result, the stock descended from January’s high of $27.12 back down to about the $23.50 level in early February.
On the other hand, the company has completed nine acquisitions in as many months, reaffirmed its quarterly dividend payout of 22.5 cents per share and just last week introduced its new line of Xeon server processors. That news should help INTC solidify its position as one of the top dividend stocks.
In the new era of “Big Data,” INTC believes its new server chips will be attractive to businesses looking to store and analyze more efficiently the vast amount of data created every day. While its servers already command a majority market share, the new processors should continue to help INTC boost its revenues against rivals Advanced Micro Devices (AMD) and IBM (IBM).
Top Dividend Stocks #2: Verizon (VZ)
Dividend Yield: 4.51%
YTD Performance: -4.15%
52-Week Return: +9.40%
The runner up on our list of top dividend stocks is Verizon (VZ).
The company announced last week that it had completed its acquisition of Vodafone’s (VOD) 45% stake in Verizon Wireless in deal worth approximately $130 billion. Shareholders of both companies approved the transaction last month, and as was previously announced, the acquisition should make for an increase in VZ’s future earnings by about 10%.
When the deal was first announced last April, VZ stock shot up to a new 52-week high of $54.31. Since then, investor enthusiasm about the deal has dwindled and the stock has come in by more than 10%, providing for a very attractive entry point. Moreover, the drop in share price has inflated VZ’s dividend yield, which now stands at 4.45%, making it No. 2 among dividend stocks for February.
Verizon has been steadily increasing its dividend for seven consecutive years, and the current annual payout now stands at $2.12 per share. Despite the recent setback, VZ carries a P/E ratio of 13.8, and with a forecasted 2014 growth rate of 22.5%, you can feel comfortable adding this high-yielder to your portfolio at current levels.
Top Dividend Stocks #1: AT&T (T)
Dividend Yield: 5.63%
YTD Performance: -6.9%
52-Week Return: -2.3%
AT&T (T) is the biggest telecommunications provider in the United States, with a market cap of $173 billion, and the company lags only Verizon in terms of mobile customers. T differs from some other dividend stocks in that it has great fundamentals.
In its fourth-quarter earnings release, AT&T reported earnings per share of 53 cents, which beat the consensus estimate by 3 cents — an upside surprise of 6%. The latest EPS reading was up from 44 cents during the same quarter a year ago, amounting to an increase of more than 20% year-over-year.
Late last year, the company’s CEO declared that “Returning value to our shareholders is one of AT&T’s top priorities.” In staying true to that statement, T repurchased almost $2 billion of its own shares in the fourth quarter, bringing its full-year stock buyback total to 366 million shares, or 6% of all outstanding shares.
The company sports a fat $1.84 annual payout, or a 5.55% yield at current levels, making it the highest yielder among Dow dividend stocks. As a result of its share repurchase program and steady quarterly dividend payments, AT&T was able to return $23 billion dollars to shareholders in 2013, and the stock should continue to reward investors this year through further earnings and revenue growth as well as increased dividend payouts.
Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income, which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and 4x greater income.