It was a crazy year for every component of the Dow Jones Industrial Average. The best Dow stock was McDonald’s (NYSE:MCD), up 31%, and the worst was Bank of America (NYSE:BAC), down almost 60%. But despite those outliers, the broader index moved only slightly upward to tally a 6% gain on the year.
Of course, dividend investors got an even better return if they played the right stocks with the right yields. Many Dow stocks pay an annual dividend worth 3% of their current share price — not a bad return on your investment in this choppy market! And some pay dividends as high as 6%.
So which companies make the best income investments in the Dow? Here’s a list of the top 10 Dow dividend stocks so you can see for yourself:
#10: Kraft, Chevron, JPMorgan and Microsoft
There is a very crowded pack in the Dow when it comes to stocks with a yield of around 3%, give or take a few hundredths of a percentage point. The companies include:
- Kraft (NYSE:KFT) — the consumer staples powerhouse locked in gains of 19% in 2011.
- Chevron (NYSE:CVX) — the oil powerhouse climbed 17% in 2011.
- JPMorgan Chase (NYSE:JPM) — a loss of 22% sounds ugly, but not compared to many of its big banking peers.
- Microsoft (NASDAQ:MSFT) — a lackluster 7% loss in 2011 held back this top tech stock.
Rather than cherry-pick a company (Kraft is the nominal winner with a 3.09% yield as of Friday’s close) only to have the list reorder in a few days, it seems best to list them all — though personally I find the presence of JPMorgan most noteworthy, as financial stocks have only recently been returning to the ranks of dividend payers.
#9: Procter & Gamble
Current Dividend Yield: 3.1%
2011 Performance: +4%
Procter & Gamble (NYSE:PG) has pretty much tracked the broader Dow Jones Industrial Average this year, squeaking out a small gain of around 4% for all of 2011. The consumer products giant has relied on the power of P&G brands like Gillette, Pampers and Duracell to provide reliable revenue — and reliable dividend payments to shareholders. Revenue and profits haven’t been growing at a breakneck pace, to be sure, but there’s something to be said for stability in a volatile market. The company has paid dividends since 1891.
Current Dividend Yield: 3.4%
2011 Performance: +16%
Semiconductor giant Intel (NASDAQ:INTC) might not seem like the place to look for big dividends. However, its 3.4% yield easily ranks it in the top 10 Dow dividend stocks. You also might think INTC isn’t doing so well right now, considering weak consumer and business spending. Wrong on that count, too. The chipmaker has posted big gains in 2011 thanks to impressive baseline demand for high-tech items. After all, it’s not like computers are becoming less common because of the downturn — if anything, they are more crucial than ever before to boost productivity. INTC is riding eight straight quarters of year-over-year revenue growth right now.
#7: Johnson & Johnson
Current Dividend Yield: 3.5%
2011 Performance: +6%
The first health care stock on the list of top 10 Dow dividend stocks is Johnson & Johnson (NYSE:JNJ) — but a few more are yet to come. The company is part-pharmaceutical giant thanks to prescription drug offerings like vaccines, and part-consumer health company thanks to products like Band-Aid and Tylenol. Revenue admittedly has been a bit stagnant at J&J during the past few years; however, earnings per share continue to improve. J&J is a sleepy play, but tracking the market for a decent gain — and a 3.6% dividend to boot — doesn’t seem like anything to sneeze at after a challenging 2011.
Current Dividend Yield: 3.6%
2011 Performance: -8%
E.I. du Pont de Nemours & Company (NYSE:DD), a.k.a. DuPont, has lagged the market so far in 2011. Dividend investors still should take note of this chemical giant, however. The 3.6% yield is one of the best in the Dow Jones Industrial Average, and DuPont could be a good long-term investment for the inevitable recovery — because even if there is a tough market for another year or two, DuPont will hang tough and pay a good dividend while you wait. As a specialty chemical company, DD provides materials for a host of products in all corners of the market. Once demand picks up, so will DD stock.
#5: General Electric
Current Dividend Yield: 3.8%
2011 Performance: -2%
General Electric (NYSE:GE) might forever be tarnished in the minds of some dividend investors after slashing its payout by two-thirds during the financial crisis. While the quarterly dividend remains about half of what it was — at just 17 cents vs. 31 before the market meltdown — the subsequent flop in GE stock managed to result in a very respectable yield. Revenue continues to slide for the conglomerate, which is a concern, but earnings remain robust and the dividends remain rich in relation to the stock’s current valuation.
Current Dividend Yield: 4%
2011 Performance: +24%
Pfizer (NYSE:PFE) has outperformed the market nicely in 2011 with one of the best returns in the entire Dow Jones. Yes, it faces the same challenge that persists across all of Big Pharma — looming patent expirations, challenges from generic medications and the frantic race to lock up patients in emerging markets. But the company has a decent research pipeline with some up-and-coming drugs that could rotate in to prop up revenues. Most importantly for dividend investors, the company has $29 billion in cash as of its third-quarter earnings report. With a forward P/E of less than 10 even after this run, there may be more upside for Pfizer in 2012. And if the stock gains don’t blow you away, that 4% dividend is a nice benefit.
Current Dividend Yield: 4.5%
2011 Performance: 5%
Merck (NYSE:MRK) is very similar to Pfizer, except for its mostly market-tracking performance in 2011. It, too, faces patent expirations and is hoping its pipeline will step up to fill the void. It, too, is trading for a bargain P/E of under 10. It, too, pays a dividend well north of 4%. A huge $41 billion buyout of rival Schering-Plough in 2009 should help provide new areas of growth, and the company has managed to post four straight year-over-year revenue beats in the quarters since Schering-Plough was integrated into operations. Throw in solid cash flow and a history of dividends since 1935, and you can understand why this stable company is a bedrock buy for many portfolios.
Current Dividend Yield: 5%
2011 Performance: +12%
Verizon (NYSE:VZ) is the leading wireless telecom provider in the U.S. by subscriptions. The company also is one of the top high-speed Internet providers in America via its FiOS fiber optic network. As the world becomes increasingly wired, it’s more important than ever before for companies like Verizon to be involved with the operations of businesses and the lives of regular Americans. This provides a very stable revenue stream that accounts for huge dividends. What’s more, Verizon’s EPS for the fiscal year are on track to tally over $2.20 — easily double the 90 cents per share earned in fiscal 2010. A target of $2.50 for fiscal 2012 shows there’s more growth to come, too.
Current Dividend Yield: 5.8%
2011 Performance: +3%
One of the biggest stories in 2011 was that AT&T (NYSE:T) tried to leapfrog rival Verizon in the wireless market via a buyout of T-Mobile. But regulators ran interference, and AT&T abandoned its bid. Don’t think that means the biggest dividend payer in the Dow Jones Industrial Average should be cut loose from your portfolio. With a dividend yield of about 6%, this is a heck of an income play. After all, 10-year T-Notes are around 2% — roughly a third of AT&T’s dividend yield. Red-hot growth might not be ahead, but AT&T is a stable company with a great dividend that’s not going anywhere. That’s the kind of investment many investors are impressed with after a volatile 2011.
Jeff Reeves is the editor of InvestorPlace.com. Write him at email@example.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.