Top 10 Dow Dividend Stocks for August

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So much for a quiet and listless August. Money never sleeps, and a good portion of it didn’t go to the beach, either.

With the S&P 500 trading at a current P/E of 19.8 times trailing 12-month earnings, it’s glaringly clear that stocks are moving higher because of low Treasury yields, not valuation.

As of today, the dividend yield on the S&P 500 sits at 1.87%; that’s still competitive with Treasuries inside 10 years, but it’s also below the inherent growth rate of dividend increases that keeps the yield at or above 2% and more attractive to yield investors. Inflation-adjusted returns in fixed income are clearly driving capital flows into equities — and until a material change in the economic backdrop takes shape, the bullish trend looks to hold firm … though not without its sudden, sharp bouts of selling.

One thing is for sure — the Dow Jones Industrials will continue to be a go-to for many individual investors seeking dividends from solid, blue-chip names. Here are the 10 highest-yielding stocks in the Dow, with sizable payouts ranging from 2.93% to 5.30%. (Note: All yields and returns are as of Aug. 28.)

coca cola logoTop Dividend Stock #10: Coca-Cola (KO)

  • Dividend Yield: 2.93%
  • YTD Performance: +0.77%
  • 52-Week Return: +8.07%

Coca-Cola (KO) pulled back quite a bit after missing on revenue in its July 22 earnings report, but has recouped much of the losses in just the past couple of weeks. The rebound began after the company’s Aug. 14 announcement of an asset swap with Monster Beverage (MNST), in which Coke will fork over energy brands like NOS and Full Throttle in exchange for Monster’s non-energy business. This adds Hansen’s natural soda and juice, Peace Tea and Hubert’s Lemonade to the Coca-Cola family of products, and also earns KO a 16.7% stake in Monster.

In fact, like a lot of the Dow behemoths, Coca-Cola is growing its business primarily through acquisitions like these. A few months ago, it made a similar deal with Keurig Green Mountain (GMCR) that will bring Coke products into the pod-based beverage world, and Coca-Cola also famously purchased another younger, trendier brand — Glaceau,maker of Vitamin Water — for $4 billion in 2007.

So it’s not surprising that the Coca-Cola board has enough “confidence in the Company’s long-term cash flow” to raise its dividend earlier this year. KO now pays out $0.305 each quarter, which translates to an annualized dividend of $1.22 per share. That makes for a very nice yield of nearly 3% at current prices, earning KO a solid spot on the list of Top 10 Dow dividends.

MRKTop Dividend Stock #9: Merck (MRK)

  • Dividend Yield: 2.93%
  • YTD Performance: +19.88%
  • 52-Week Return: +25.71%

One of the biggest pharmaceutical companies around, Merck (MRK) also has a proven history of slow but steady earnings growth, with EPS rising by 1 cent year-over-year in each of the last four quarters. The latest EPS figure of 85 cents surprised to the upside by 4 cents, and not a single analyst who follows MRK is placing a “sell” recommendation on it.

Over and over this year we’ve seen mega merger deals crossing the tape; Merck’s big M&A headline was back in May, when it made a deal to sell its $14 billion Merck Consumer Care business to Bayer (BAYRY). By divesting itself of its Claritin, Afrin and Coppertone brands, Merck’s goal seems to be getting back to basics. In the press release, the company said that it expects the move to “ensure that assets within our portfolio align with our core strategy, have industry-leading potential and generate long-term shareholder value.”

Translation: Instead of over-the-counter products, Merck will focus on research and beefing up its pipeline of the prescription drugs that are its bread and butter. That’s what the Street likes to see, which accounts for the strong analyst opinions that I cited earlier. As for yield, MRK has a strong dividend history and currently pays $0.44 per quarter, with the next ex-dividend date coming up on Sept. 11.

csco stock cisco logoTop Dividend Stock #8: Cisco Systems (CSCO)

  • Dividend Yield: 3.06%
  • YTD Performance: +10.79%
  • 52-Week Return: +4.15%

Cisco Systems (CSCO)’s Aug. 13 earnings report was highly anticipated as analysts looked to see if the tech giant’s cost-saving measures paid off. Sure enough, Cisco beat earnings expectations on both the top and the bottom lines, which is a great sign from a fundamental standpoint.

As a legacy tech stock, CSCO is probably better known as the kind of high-profile Nasdaq name that attracts the fast money — but it actually has an enviable dividend history as well. CSCO first started paying a dividend in 2011, at just $0.06, but nearly tripled that payout by 2013, now paying $0.19 per share for a 3.06% forward yield.

Legacy tech really caught a bid starting in May, and with comparatively few Nasdaq stocks paying any sort of yield, expect CSCO to remain popular for those seeking income in the tech space.

procter-gamble-pg-stockTop Dividend Stock #7: Procter & Gamble (PG)

  • Dividend Yield: 3.10%
  • YTD Performance: +1.99%
  • 52-Week Return: +3.77%

Procter & Gamble (PG) has one of the longest dividend histories among the Dow Jones Industrials, having paid dividends for more than 100 years — and PG has raised its payout for 58 years in a row. PG stock is up more than 5% after its Aug. 1 earnings release, Wall Street’s biggest takeaway being the company’s plan to shed more than 100 of its brands.

On the earnings call, CEO AG Lafley said that, after the divestiture, PG “will become a much more focused, much more streamlined company of 70 to 80 brands” that together have “accounted for 90% of company sales and over 95% of profit.” The specifics are yet to be announced, but the rumor mill is speculating that anything from Braun and Rindex to more popular brands like Duracell could be on the chopping block.

The Q1 announcement also included a four-cent EPS beat ($0.95 vs. expectations for $0.91), as well as an $11.6 billion profit for the fiscal year. As for the dividend, PG maintained the same $0.644 payout as in the previous quarter, which amounts to a 3.10% current yield.

dividend stocks chevron cvxTop Dividend Stock #5: Chevron (CVX)

  • Dividend Yield: 3.32%
  • YTD Performance: +3.07%
  • 52-Week Return: +7.71%

Energy has been one of the top sectors this spring and summer, allowing Chevron (CVX) to hit new highs in June and July before pulling back in August along with retreating oil and gas prices.

Chevron’s second-quarter earnings report was largely impressive, as the company’s EPS came in at $2.98, a 7.6% increase from Q2 2013 as well as a 12% upside surprise compared to analyst consensus of $2.66. The EPS figure makes for a price/earnings ratio of 11.84, meaning that CVX is trading at a discount compared to the larger sector, whose EPS is 15.28.

CEO John Watson did acknowledge that production declined in Q2 compared to the year-ago quarter “as a result of planned maintenance activity at Tengizchevroil in Kazakhstan,” but also noted that he expects production to rise 20% by 2017. Chevron is working on two new deepwater drilling projects in the Gulf of Mexico, both of which should be online in the next few months, and its Gorgon LNG project in Australia is on schedule to join them in mid-2015.

And based on current trends alone, analysts at S&P Capital IQ expect CVX to continue raising its dividend by 6.5% going forward due to strong free cash flow and earnings. That’s encouraging news for Chevron’s investors, who are already enjoying a $1.07 quarterly payout for a 3.32% current yield.

General Electric GETop Dividend Stock #5: General Electric (GE)

  • Dividend Yield: 3.38%
  • YTD Performance: -7.21%
  • 52-Week Return: +9.38%

General Electric (GE) has lagged the market for much of 2014 but has started to catch back up in the last month after coming in with a positive Q2 earnings report that included year-over-year growth in both earnings and revenues.

Appliances have been a sticking point for many GE investors, and the company has made multiple attempts to offload that segment of its business. Electrolux (ELUXY) announced on Aug. 14 that a potential acquisition of GE Appliances is in the works. Quirky Inc. is also interested, but Electrolux is reported to be fairly far along in purchasing the $2 billion business that once created the combination washer/dryer and the toaster oven.

GE’s latest dividend was more than covered by the Q2 earnings; paid in late July, it came to $0.22 per share, with the next payout likely to be announced in early September. GE has raised its dividend for the past three years, and it’s easy to see why this 3.38% yielder remains popular among Dow investors seeking income.

MCD stockTop Dividend Stock #4: McDonald’s (MCD)

  • Dividend Yield: 3.44%
  • YTD Performance: -2.98%
  • 52-Week Return: -1.04%

The dividend yield for McDonald’s (MCD) continues to creep higher due to its share price trending lower. U.S. competitors like Chipotle Mexican Grill (CMG) and Panera Bread (PNRA) continue to steal market share from the Golden Arches, as these “fast casual” chains have been much more successful at marketing fresh, healthy menu options.

So, like many other multinationals, MCD’s best growth opportunity at this point is overseas, particularly in emerging markets. Its efforts in China have hit a speed bump after news broke in July that MCD and Yum! Brands (YUM) restaurants had been serving expired meat from their Chinese suppliers. But prior to that, second-quarter figures showed 1.1% growth in MCD’s Asia/Pacific, Middle East and Africa segment, including “strong comparable sales performance in China.”

Assuming that these problems are fixable over the long term, MCD could remain a valuable buy-and-hold income play. Its dividend history is strong, with increases each year, and as of Q2 the company plans to boost shareholder income by 20%. The latest payout was $0.81, for a 3.44% yield at current prices.

pfizer stock pfeTop Dividend Stock #3: Pfizer (PFE)

  • Dividend Yield: 3.54%
  • YTD Performance: -4.08%
  • 52-Week Return: +3.67%

Pfizer (PFE) has had its fair share of setbacks in the last few months. The Big Pharma giant failed in its play for AstraZeneca (AZN) in May, and though second-quarter earnings were strong, revenues declined. In Q2, revenues fell 2%, and Pfizer cut its revenue guidance as well.

The second-quarter report did have some bright spots, however. PFE maintained its overall guidance for 2014, and earnings, which came in at $0.58 per share, beat both analyst consensus and the year-ago figure. EPS was more than enough to cover PFE’s $0.26 dividend so as to maintain a 3.54% yield for investors.

There’s talk that PFE may make another bid for AstraZeneca in coming months, and an acquisition of sterile-injectables maker InnoPharma is also in progress, so the company is certainly not resting on its laurels. Given the stock’s strong history of paying hefty dividends, as well as increasing the payout steadily in the past five years, PFE still earns its spot on the list of top Dow dividends.

Verizon stock VZ stockTop Dividend Stock #2: Verizon (VZ)

  • Dividend Yield: 4.29%
  • YTD Performance: +0.55%
  • 52-Week Return: +3.78%

Verizon (VZ) has a long history of taking out competition in rural telecom and mobile phones alike, and now it’s reportedly planning to elbow in to the inflight Wi-Fi and mobile app businesses too.

Just last week, it came to light that Verizon may be developing a new app store, encroaching on Apple (AAPL) and Google’s (GOOG) stranglehold on that market. The next day, rumors sprung up that VZ is looking to make a partnership with Gogo (GOGO) in order to compete with AT&T (T) and its airline connectivity business.

Earnings, revenue and profit figures were already strong in the second-quarter report, and if these new efforts are successful, it’d be a great way for Verizon to maintain its status as the big Kahuna in just about every market in which it competes. From an income perspective, it also ups the chances that it will continue raising its dividend like clockwork; the payout currently sits at $0.53, making for a 4.29% forward yield.

AT&T stockTop Dividend Stock #1: AT&T (T)

  • Dividend Yield: 5.30%
  • YTD Performance: -1.19%
  • 52-Week Return: +1.31%

With a 5.30% yield, AT&T (T) has a safe spot atop the list of Dow dividend stocks. And like many of its peers, it’s making some aggressive moves on the M&A front.

The latest rumor to hit the tape is that AT&T is once again looking to take over Vodaphone (VOD), the top European telecom provider. Earlier this year, T was said to be interested in T-Mobile (TMUS) as well, though more recently the two companies have been more entrenched in a price war than anything else.

Either way, AT&T remains the second-largest company in the wireless business (behind Verizon), and its subscription base continues to thrive. In the second quarter, it boosted subscriptions by 1 million, blowing away analyst consensus of 816,000, and profit margins were strong. So, although Q2 earnings were a penny light of consensus and sales growth failed to live up to expectations as well, the big fundamental picture looks strong for this hard-to-beat telecom giant.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/08/top-dow-dividend-stocks-2/.

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