Dividend stocks were in focus big-time in 2011. Some of the top performers included utilities and tobacco companies with reliable dividends and impressive yields.
But the market has taken a decidedly different tone after the best January for the market since 1997. It seems that growth and technology are again in focus, and many investors are moving away from dividend stocks and into more “growthy” sectors. As a result, those old income favorites of 2011 have been held back this year. The broad-based Select Sector Utilities SPDR (NYSE:XLU) ETF is in the red year-to-date, as is tobacco giant Altria (NYSE:MO).
So can you rely on dividends in 2012, or should you go for growth with your IRA or brokerage account? Well, there’s certainly something to be said for looking beyond sleepy blue chips with reliable dividends — but even the most aggressive investor needs to keep a firm foundation for their retirement portfolio. You might want to get more selective with your income-oriented plays this year, but you certainly don’t want to abandon dividends altogether in your IRA or brokerage account.
To help you identify the cream of the crop, here are the top 10 Dow dividend stocks worth a look for your holdings:
#10: Kraft and Chevron (Tie)
There is a bit of a crowd when you look at the No. 10 spot on this list, and considering that dividend yields change daily based on share price, it seems best to just call it a tie between packaged foods giant Kraft (NYSE:KFT) and big oil company Chevron (NYSE:CVX). Chevron technically is the winner with a yield of 3.09% vs. 3.01% for Kraft, but that’s just based on today’s pricing.
Both companies are rock-solid. Kraft is up about 23% in the past 12 months, well over four times the roughly 5% returned by the Dow Jones Industrial Average, and its plans to split into two separate companies — a global snack foods corporation and a North American grocery company — has been warmly received thus far. There is no firm date for the split, but it should happen in the next year or so.
As for Chevron, the stock is up strongly in the past six months as oil has surged from around $77 per barrel in October to more than $100 currently. Geopolitical unrest, including Iran sanctions, and general inflationary pressures are to blame. As we all know, expensive oil means bigger profits for Chevron, so expect momentum to continue as long as crude moves higher.
Lastly, it’s also worth noting that JPMorgan Chase (NYSE:JPM) and Microsoft (NASDAQ:MSFT) aren’t far behind, with yields of about 2.7% as of this writing, so a big move for either company could boost the yield to make it No. 10 on this list.
Current Dividend Yield: 3.2%
Performance So Far in 2012: +10%
Tech stocks aren’t exactly a bastion of big dividends. But mature semiconductor stock Intel (NASDAQ:INTC) actually has been paying dividends since 1992, and has made big strides increasing its dividends during the past few years.
You also might think INTC stock isn’t doing so well right now, considering the rise of tablets using other processors (read: iPad) and continued troubles with consumer and business confidence. 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 as businesses delay hiring.
Intel saw revenue leap 24% from fiscal 2010 to fiscal 2011, while profits jumped 17% year-over-year. No wonder it can pay juicier dividends.
Current Dividend Yield: 3.2%
Performance So Far in 2012: +12%
E.I. du Pont de Nemours & Company (NYSE:DD), a.k.a. DuPont, lagged the market in 2011 with a -8% decline. However, it has more than made up for that loss with a surge of 12% right out of the gate in 2012 — easily double the broader market’s gains.
Dividend investors in it for the long term know the staying power of DuPont. The company has paid dividends for more than 100 years, and is a stable industrial giant that isn’t going anywhere. In fact, 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 chemicals company, DD provides materials for a host of products in all corners of the market. Once demand picks up, so will DD stock.
#7: Procter & Gamble
Current Dividend Yield: 3.3%
Performance So Far in 2012: -4%
Procter & Gamble (NYSE:PG) is a good example of a high-yielding dividend stock that has fallen out of favor for “growthier” plays in 2012. The consumer products giant has relied on the power of P&G brands like Gillette, Pampers and Duracell to provide reliable revenue across rough economic times — and thus reliable dividend payments to shareholders. However, the flip side of stability in PG is that revenue and profits haven’t been growing at a breakneck pace.
Will Procter & Gamble stock continue to decline? Maybe, but not for long. The bottom line is that it is the brains behind some of the biggest brands in America. If you’re looking for a growth investment, then PG will never pass muster — but the company has paid dividends since 1891 and offers a very nice yield of 3.3%. That’s nothing to sniff at.
#6: Johnson & Johnson
Current Dividend Yield: 3.5%
Performance So Far in 2012: -2%
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. And if you believe projections, Johnson & Johnson could see a stunning 48% jump in earnings per share for fiscal 2012 compared with fiscal 2011. Throw in the fact that unlike other big pharma stocks, Johnson & Johnson is a diversified company with plenty of consumer offerings that will avoid painful patent expirations, and you have another plus.
The recession-proof nature of the health care sector, coupled with the aging baby boomer population driving up demand for medications, make J&J even more compelling. Throw in the 3.5% yield, and you have a decent long-term play.
#5: General Electric
Current Dividend Yield: 3.6%
Performance So Far in 2012: +5%
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 and recent moves to increase payouts have managed to result in a very respectable yield of 3.6%.
GE admittedly has its near-term troubles, as evidenced by recent General Electric earnings. But that doesn’t seem to be deterring investors, who have bid it up nicely so far in 2012. That’s because while the stock might be seeing some headwinds, it has some long-term potential as its banking arm continues to improve and as its energy and infrastructure segment continues to grow.
GE isn’t going to return to pre-Lehman valuations anytime soon. But it’s definitely stable and on the mend — paying a healthy dividend all the while, too.
Current Dividend Yield: 4.2%
Performance So Far in 2012: -3%
Pfizer (NYSE:PFE) outperformed the market nicely in 2011 with one of the best returns in the entire Dow Jones — 23% in returns, to be precise. But like so many high-fliers with high yield, Pfizer has hit a speed bump in 2012 as shares have lagged the strong rally on the rest of Wall Street.
Part of that is more than just sector rotation, too. Pfizer 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 last earnings report. With a forward P/E of about 9 right now even after the red-hot run of 2011, there might be more upside for Pfizer in 2012.
And if the stock lags? Well, that 4.2% dividend is a nice sweetener to hedge your bets.
Current Dividend Yield: 4.4%
Performance So Far in 2012: +1%
Merck (NYSE:MRK) is very similar to Pfizer in many ways. Though it didn’t have quite as impressive a 2011, it edged up nicely. And though it’s not in the red in 2012, it assuredly has been left behind. It, too, faces patent expirations and is hoping its pipeline will step up to fill the void.
On the plus side? It, too, is trading for a bargain P/E of under 10. It, too, pays a dividend well north of 4%.
There obviously is not breakneck growth in pharmaceuticals, but the continued roll-in of the $41 billion Schering-Plough buyout from a few years ago will surely provide new opportunities for Merck. At the very least, it ensures the company won’t fade away.
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: 5.3%
Performance So Far in 2012: -6%
Verizon (NYSE:VZ) remains the leading wireless telecom provider in the U.S. by subscriptions, thanks to the failed AT&T and T-Mobile merger. 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 fiscal 2012 are on track to tally over $2.40 — almost triple the 85 cents per share earned in fiscal 2011. Four straight quarters of year-over-year revenue increases also are a good sign for this telecom stock.
Throw in the 5.3% dividend yield for Verizon, and you have plenty of reason to stick around for the long term, too.
Current Dividend Yield: 5.9%
Performance So Far in 2012: -1%
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, though. With a dividend yield of about 5.9%, this is a heck of an income play.
What’s more, AT&T actually pulls in more annual revenue than Verizon — $126 billion, to be precise — and has an even more impressive EPS forecast for fiscal 2012. A prediction of $2.46 per share vs. 66 cents per share in fiscal 2011 gives AT&T the potential for 270% earnings growth!
That’s not to say that trajectory is sustainable, and that AT&T is in any way a growth stock. But if you’re looking for a big dividend payer whose balance sheet is moving in the right direction, AT&T is worth dialing in.
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.