Counting Down the Best of the Big 30
The Dow Jones Industrial Average has had a very interesting year. The overall blue-chip index has ticked up about 10% since Jan. 1, but a large number of stocks haven’t shown investors fireworks, to say the least. Aside from a handful of tremendous gainers and a handful of tremendous losers, the overall Dow index has just plodded along. (Check out my previous article with a complete list of returns for all 30 Dow stocks in 2011 for details.)
However, if you focus solely on share price, you are overlooking the power of dividends. Many Dow components offer robust dividend yields, and this income power should be taken into consideration. Stable blue-chip stocks with significant dividends are an important part of many individual investors’ strategies, whether it’s just providing a firm backbone for their portfolio or they are mainly focused on income investments.
So which Dow stocks offer the biggest dividend potential? Here are the top 10 Dow dividend stocks as of May 2011:
10. Chevron Corp. (CVX)
Annual Dividend: $3.12
Dividend Yield: 3.1%
Oil stock Chevron Corp. (NYSE: CVX) has been benefitting from surging crude oil prices, and although commodities have rolled back in recent weeks, that didn’t stop it from posting a 70% year-over-year earnings jump in Q1, and a 36% year-over-year increase in Q2.
It’s no surprise then that Chevron is flush with cash, and returning a big chunk of that to investors. The company just hiked its quarterly dividend to 78 cents a share, payable June 10, to shareholders of record on May 17. On top of the hefty dividend, there is also great stock performance to please CVX investors — the oil company is up 12% so far in 2011, and 28% in the past 12 months.
9. McDonald’s Corp. (MCD)
Annual Dividend: $2.44
Dividend Yield: 3.1%
Barely squeaking past Chevron (at the time of this writing anyway), McDonald’s Corp. (NYSE: MCD) comes in at No. 9 on our list of Dow dividend stocks. The company is a case study in stability, losing only about 20% from its 2008 peak to the market lows in 2009, as the Dow Jones Industrial Average shaved off twice that. And while many components are not yet back to pre-recession levels, MCD continues to set new all-time highs.
Though the company has underperformed in the past few months, it is a solid income play over the long term. McDonald’s paid its last quarterly dividend of 61 cents on March 15.
8. Procter & Gamble (PG)
Annual Dividend: $2.10
Dividend Yield: 3.2%
Consumer products giant Procter & Gamble (NYSE: PG) is one of the most consistent dividend payers on Wall Street, with a record of payouts since 1891. Since its products like Pampers diapers and Gillette razors are generally not affected by changes in the economy or geopolitical unrest, P&G has steady sales and a reliable revenue stream that low-risk investors can depend on.
The quarterly PG dividend is 52.5 cents, with its next payout coming on May 15. Though Procter & Gamble hasn’t had a lot of pop in its stock in the past year or so, it has slowly worked its way back up to near a new 52-week high as of this writing.
7. Kraft Foods Inc. (KFT)
Annual Dividend: $1.16
Dividend Yield: 3.4%
Like the aforementioned Procter & Gamble, food products giant Kraft Foods Inc. (NYSE: KFT) boasts good cash flow, a leading market share in the stable consumer staples marketplace, and a plump dividend yield.
Kraft hasn’t set off a lot of fireworks in recent years, marching in lockstep with the market. Its returns so far in 2011 mirror the market, as does the performance for KFT over the last five years. But that kind of stability is a big selling point for low-risk, income investors. And considering that Kraft’s fiscal 2010 revenue surged 21% over the prior year, there’s a chance things could be looking up in the months ahead for KFT stock. KFT paid its latest quarterly dividend on April 13.
6. Johnson & Johnson (JNJ)
Annual Dividend: $2.28
Dividend Yield: 3.5%
Health-care giant Johnson & Johnson (NYSE: JNJ) is a hybrid between a stable consumer company and a pharmaceutical powerhouse. Its brands like Band-Aids and Tylenol keep a steady flow of cash in its coffers, while medical devices like heart stents and prescription drugs such as pediatric vaccines give the company growth potential in the health-care sector.
Though JNJ revenue is off from its 2008 peak, earnings have marched steadily upward. That has helped Johnson & Johnson maintain dividend payouts since 1944, and recently boost its quarterly dividend almost 6% to 57 cents a share, which is payable June 13 to shareholders of record on May 26.
5. Intel Corp. (INTC)
Annual Dividend: 84 cents
Dividend Yield: 3.5%
Some old-school income investors may be surprised to see Intel Corp. (NASDAQ: INTC) on this list. But given its $128 billion market size, dominance of the semiconductor market and low debt levels compared to peers, it’s easy to understand how Intel can offer big dividends on a reliable revenue stream. Intel is far and away the leader in global semiconductor sales with a 13% market share and nearly 50% more revenue than the No. 2 semi stock.
Although INTC stock hasn’t impressed investors over the past few months, a strong gain of about 20% since its strong earnings report in late April has given shares momentum. Intel has paid a dividend since 1992, wand just announced this week it would boost its payout to 21 cents a share – the second hike in as many quarters.
4. Pfizer Inc. (PFE)
Annual Dividend: 80 cents
Dividend Yield: 3.8%
Big pharma’s Pfizer Inc. (NYSE: PFE) has surprised many market watchers with a stunning gain since Jan. 1, tacking on about 20% and doubling the broader Dow Jones Industrial Average. Partly because of its 2009 acquisition of smaller drugmaker Wyeth, Pfizer has been able to bolster sales and margins ahead of major patent expirations in 2011 and 2012.
Though much uncertainty lingers about Pfizer’s long-term fate, the steady upward march of both earnings and revenue implies that this pharmaceutical maker’s 110-year history of dividend payments is secure. The next dividend will be paid June 6 to shareholders of record on May 11.
3. Merck & Co. Inc. (MRK)
Annual Dividend: $1.52
Dividend Yield: 4.1%
Unlike its competitor Pfizer, Merck & Co. Inc. (NYSE: MRK) hasn’t quite had the bounce in its step in 2011. The stock is about flat year-to-date and has underperformed the Dow Jones ever since the market started to mend in late 2009. But while Merck faces patent expiration and generic drug competition that could impact its business, earnings and revenue remain strong. 2010 revenue was almost double the numbers for 2008 thanks to a blockbuster $41 billion deal to merge with Schering-Plough and a robust R&D pipeline could keep those sales strong.
Dividends have been paid since 1935, though Merck hasn’t increased its dividend since 2004. If this kind of growth continues, MRK could lift its already impressive dividend soon. The last dividend was paid on April 6.
2. Verizon Communications Inc. (VZ)
Verizon Communications Inc. (NYSE: VZ) made a splash this year by finally reeling in a partnership with Apple Inc. (NASDAQ: AAPL) for the tech giant’s iconic iPhone. Recent gains due to its FiOS product and additions to wireless service subscribers — VZ added about 900,000 new subscribers in Q1 — have fueled gains that have doubled the broader stock market in the last 12 months. Specifically, Verizon is up over 30% since May 2010, while the Dow has added about 16%.
When you top off those gains with an impressive dividend yield of over 5.2%, it adds up to a lot of shareholder value. The last dividend was paid on May 1.
1. AT&T Inc. (T)
Annual dividend: $1.72
Dividend Yield: 5.4%
AT&T Inc. (NYSE: T) may take a lot of heat from customers thanks to troublesome perceptions about its network. But among investors looking for high dividend yields, there’s no better option in the Dow Jones Industrial Average.
What’s more, the recent news that AT&T will be acquiring T-Mobile (pending regulatory approval) creates a virtual duopoly in the wireless telecom sector with top competitor Verizon. The deal will give AT&T 130 million subscribers, catapulting it significantly beyond rival Verizon, and making it almost three times the size of perpetual money-loser Sprint (NYSE: S). This secure market position means secure revenues, and thus, nearly guaranteed dividends for investors, the last of which was paid on May 1.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.