As dividends get attractive, investors should be cautious. Once a dividend yield rises above 5%, there often is much pressure to cut back the payout. Actually, such companies often are vulnerable to lower cash flows.
But things are different for stocks that trade on the Dow. Of course, these are top-notch companies that have massive global footprints. In other words, it’s a good bet that a hefty dividend rate will be sustainable.
So, what are the high-yield Dow stocks? Let’s take a look:
General Electric (NYSE:GE) — 4%: Berkshire Hathaway’s (NYSE:BRK.A) Warren Buffett is a large holder of the company’s shares. Then again, GE is a dominant player in businesses that have strong long-term growth opportunities, like clean energy, transportation, health care and infrastructure.
The company also might eventually spin off GE Capital, which could help boost shareholder value. Keep in mind that the value of the division is about $68 billion.
Intel (NASDAQ:INTC) — 4.2%: A slowdown in the economy likely will be a drag. Yet, Intel is making strides in the mobile market. For example, the company has established a $300 venture fund for tablet technologies. Yes, it is nice to have huge cash flows.
Intel also will probably ramp up acquisitions as the valuations get compelling. Already, the company has made smart deals for McAfee and Infineon’s (PINK:IFNNY) mobile chips division.
Verizon (NYSE:VZ) — 5%: The company definitely has some problems, such as the strike. But the company has a new CEO, Lowell McAdam, who has a history of innovation. Keep in mind that he struck the deal with Google (NASDAQ:GOOG) to create Android phones.
Something else: With the expected launch of Apple’s (NASDAQ:AAPL) iPhone 5 in September, there is likely to be a strong growth catalyst for the fall.
AT&T (NYSE:T) – 6.2%: Speaking of the iPhone, the company’s loss of its exclusivity arrangement has not been a big problem. In fact, AT&T continues to make strides in additions with its overall subscriber base. And yes, the merger with T-Mobile USA will provide even more scale (however, it still is dicey as to whether the federal regulators will approve the transaction).
No doubt, the dividend yield is quite high. But the company still generates substantial cash flows. In the first six months of 2011, they came to $7.3 billion.
Merck (NYSE:MRK) – 5.1%: Over the years, the company has been working hard to deal with the expiration of patents. For example, Merck has been getting much more aggressive in emerging markets (the China market is growing at a 30% rate). Merck has also been increasing research & development as well as joint ventures.
But another key part of the strategy is cost cutting. True, the layoffs have been brutal, yet they will be critical for maintaining strong profitability.
Pfizer (NYSE:PFE) — 3.1%: As should be no surprise, the company’s strategy is similar to Merck’s. That is, there is a focus on finding blockbuster drugs as well as cutting back on expenses.
But in the case of Pfizer, it certainly has a top-notch CEO, who has extensive experience in foreign markets. Actually, the company already has a strong footprint in markets such as China and Brazil.
Pfizer also has an opportunity to spin off businesses, such as its nutritional division, which could be worth as much as $7 billion.
Tom Taulli is the author of various books, including “All About Commodities” and “All About Short Selling.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
