Top 10 Dow Dividend Stocks

by Jeff Reeves | July 20, 2012 9:00 am

dow dividend stocksBy now, income investing and buying the best dividend stocks seems all we talk about here at The hunger for yield in 2012 continues as investors pile into dividend stocks even during the headline-driven earnings season.

That’s because with the eurozone debt crisis still afoot (consider Spanish bond yields[1] still hover in the 7% range), China’s economy showing a slowdown and resulting in calls for policy action[2] and the lingering trouble in the U.S. jobs market … well, it’s still very much a “risk-off” environment for traders in these low-volume days of summer.

The good news is that while the market is choppy, there are options. When you are thinking in terms of retirement decades down the road, dividends can add up in a hurry. Consider this: If you buy a stock with a 4% dividend, you will double your money in about 18 years even if the stock goes nowhere. That’s peace of mind that many long-term investors thirst for right now.

So if you’re looking for the biggest brands with the biggest-yielding stocks, here’s a list of the top 10 dividend stocks in the Dow Jones Industrial Average to help you out:

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#10: Chevron

Chevron Corp. (NYSE:CVX)Current Dividend Yield: 3.3%
Performance So Far in 2012: +2%

Worried about expensive gasoline? Don’t be. Crude oil has rolled back slightly from its 2012 high of around $111 a barrel to down below $90 again as of this writing. Oil is challenging lows not seen since October of last year and right on par with crude oil prices at the end of 2010.

So it’s no surprise that amid weaker prices and pretty flat demand, Chevron (NYSE:CVX[4]) has lagged a bit on the share-price side — up just 1% to the Dow’s 5%. Last quarter, oil stock earnings[5] showed that refining continues to be a bit of a drag in the short term for Chevron and other oil majors — and we can expect similar results when Chevron earnings come out July 27 with other oil majors.

But on the income side, Chevron has strength that is difficult to overlook. The company has paid dividends since 1912. It has increased its payouts twice in the past year — from 72 cents quarterly in March 2011 to 78 cents in June 2011, then up again to 81 cents as of December 2011.

And while crude oil prices have rolled back, let’s not pretend we’re going to get back to $50 per barrel anytime soon, with geopolitical unrest in the Middle East and hungry emerging markets like China and Brazil increasing energy demand at an impressive clip despite relative “slowdowns” there. If you’re a dividend investor looking for a low-risk stock with a reliable revenue stream that ensures juicy payouts, Chevron certainly is worth looking into.

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#9: General Electric

General Electric GECurrent Dividend Yield: 3.4%
Performance So Far in 2012: +10%

General Electric (NYSE:GE[6]) recently was featured as one of Warren Buffett’s favorite dividend stocks[7]. After all, Buffett and Berkshire Hathaway (NYSE:BRK.A[8], BRK.B[9]) own a cool 7.77 million shares.

However, 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 recent history is worth noting.

Consider that in April 2011, GE paid 14 cents each quarter. By the summer it was paying 15 cents, and by January 2012 it was up to 17 cents a quarter. Now we just received news that General Electric’s finance arm received the green light to share some of its wealth with shareholders, too. Specifically, regulators signed off on a special dividend from GE Capital[10] along with permission for the group to resume paying regular dividends later this year.

GE admittedly has its troubles. We saw rather lackluster General Electric earnings in February[11], but a stronger showing in April as GE reported its fiscal first-quarter earnings[12]. With 40% of its revenue coming from GE Aviation, it’s hard for the company to break out without big airplane orders or defense contracts. But the company reported second-quarter profit slightly above expectations today, offsetting weaker-than-forecast revenue growth so maybe things are on the mend.

With a current 3.5% yield, this stock is steadily climbing back into the ranks of Wall Street’s best income stocks. A nice market-beating gain since Jan. 1 also is a plus.

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#8: JPMorgan Chase

JPMorgan NYSE:JPMCurrent Dividend Yield: 3.4%
Performance So Far in 2012: +4%

JPMorgan Chase (NYSE:JPM[13]) might be tracking the market year-to-date, but it’s off nearly 25% from its spring peak. That’s because of a host of ugly headlines, including initial news in May of a disastrous JPM trading loss[14] that ultimately shaved $4 billion off of earnings[15]. Bigwig Jamie Dimon even got a summons to Capitol Hill to take a whipping from Congress and supporters of the Volcker Rule[16].

But the stock still is hanging tough, boasts a great yield and is the largest American bank by assets.

On the dividend side, JPM was granted Federal Reserve permission to raise its dividend in March[17], even as competitors like Citigroup (NYSE:C[18]) and Bank of America (NYSE:BAC[19]) have failed to improve their payouts beyond a nominal penny per quarter in dividends. You can bet that Ben Bernanke and others at the Fed wouldn’t have allowed JPM to boost its payout if it wasn’t sustainable. And on the profits side, JPM still is tracking earnings growth of more than 20% this fiscal year even after the trading loss. As Dan Burrows recently noted in an earnings recap, JPMorgan has a cold — not pneumonia[20].

If you’re a long-term investor, you might want to consider JPM stock.

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#7: DuPont

Dupont (NYSE:DD)Current Dividend Yield: 3.5%
Performance So Far in 2012: +7%

E.I. du Pont de Nemours & Company (NYSE:DD[21]), or simply DuPont, is a chemicals giant made famous by products including Tyvek house wrap, Teflon non-stick coatings and stretchy Lycra synthetic fabric.

DuPont isn’t quite as sexy as a Silicon Valley tech shop but clearly is an innovator with a long history of great product creation. DD stock lagged the market in 2011 with an 8% decline but has topped the Dow’s 5% gains so far in 2012.

DD reports earnings on July 24. And based on past performance, this chemicals stock is looking good. Revenue is up year-over-year for the 10th consecutive quarter after strong earnings in April, and DuPont’s EPS have gone from $1.92 for fiscal 2009 to an impressive $3.68 in fiscal 2011 — almost double — and are forecast to jump another 15% in fiscal 2012.

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. At the end of April after DuPont’s earnings, it added another 2 cents to its quarterly payday[22], too, proving this industrial company is not just preserving dividends — but improving them.

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#6: Procter & Gamble

Procter & Gamble (NYSE:PG)Current Dividend Yield: 3.5%
Performance So Far in 2012: -3%

Procter & Gamble (NYSE:PG[23]) recently made our list of 10 dividend stocks left behind in 2012[24]. In April, P&G earnings[25] showed a disappointing outlook for the rest of the year and Aug. 3 numbers likely will reflect that continued gloominess.

But Procter & Gamble CEO Bob McDonald[26] is looking overseas to prop up the balance sheet amid rising commodity costs, frugal U.S. consumers and performance that lags rivals like Colgate-Palmolive (NYSE:CL[27]). And let’s face it: Even though the consumer products giant is slightly down, it is hardly out. P&G is going nowhere thanks to brands like Gillette, Pampers and Duracell that provide reliable revenue across rough economic times — and thus reliable dividend payments, too.

Yes, PG stock hasn’t seen much growth, and that is a concern. But you can’t get more defensive than consumer staples, so dividend investors might want to turn to Procter & Gamble anyway as the market continues to muddle through summer.

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#5: Johnson & Johnson

Johnson & Johnson (NYSE:JNJ)Current Dividend Yield: 3.5%
Performance So Far in 2012: +6%

Johnson & Johnson (NYSE:JNJ[28]) also made the list of Warren Buffett’s favorite dividend stocks[7], since Berkshire holds some 29 million shares. And with a nice dividend and a footprint in the recession-proof health care biz, it’s easy to see why.

Of course J&J has hit some headwinds in recent years over quality control, calling into question how well-run the company really is. In fact recent Q2 earnings[29] show a lowered outlook and a big dip in profits due to litigation over product recalls. But a new Johnson & Johnson CEO at the helm[30] is changing things and hoping to change all that in the months ahead.

One thing that never has changed, of course, is the dividend potential of Johnson & Johnson. JNJ has raised dividends for 49 years in a row, helping make it a Dependable Dividend Stock[31]. During the past decade, the company has managed to boost distributions by more than 12% per year — all while delivering a headline yield of about 3.5% right now.

And unlike some big pharma stocks that pay nice yields, the biggest dividend driver isn’t prescription drug offerings. While JNJ does offer some vaccines and medical products, consumer health offerings like Band-Aid and Tylenol provide its steadiest revenue stream.

Revenue admittedly has been a bit stagnant at J&J during the past few years; hence, the stock has seen some underperformance. But even on reduced projections, Johnson & Johnson could see a stunning 45% jump in earnings per share for fiscal 2012 compared with fiscal 2011. Time will tell if management can hit those targets, but in the meantime the dividend is a pretty nice hedge — even if the stock moves sideways.

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#4: Pfizer

Pfizer (NYSE:PFE)Current Dividend Yield: 3.7%
Performance So Far in 2012: +10%

Pfizer (NYSE:PFE[32]) outperformed the market nicely in 2011 with one of the best returns in the entire Dow Jones[33] — 23% in gains, to be precise. And while performance cooled early in the year, the stock has come roaring back since February as defensive investments like health care return to favor. It’s now outperforming the broader Dow Jones Industrial Average.

Yes, long-term challenges at Pfizer are the same as the risks that persist 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 goose still is laying golden eggs for shareholders in the form of 22-cent quarterly disbursements, with dividend payments dating back to 1901.

Looking forward, 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[34] on the books. Even if revenue hits a hiccup across 2012 — as it did in fiscal 2011 when it slid from $67.8 billion to $67.4 billion — the cash is there to preserve this juicy dividend.

Note: Pfizer reports earnings July 31.

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#3: Merck

Merck & Co. (NYSE:MRK)Current Dividend Yield: 3.8%
Performance So Far in 2012:

Merck (NYSE:MRK[35]) is very similar to Pfizer (NYSE:PFE[32]) in many ways. It too faces patent expirations. It too is hoping its pipeline will step up to fill the void. And it too pays a huge dividend.

Merck apparently has answered one of the big questions about its pipeline, however, judging by a run over the last few weeks. A new osteoporosis drug looks very promising for the drugmaker[36] and investors have piled in, driving up shares about 14% in just a month or so. It’s now triple the Dow Jones average year-to-date in 2012.

Additionally, the continued roll-in of the $41 billion Schering-Plough buyout from a few years ago surely will provide new opportunities for Merck. At the very least, it ensures the company won’t fade away.

And like its cohort Pfizer, MRK is sitting on a huge war chest. Some $13.5 billion in cash and $1.4 billion in short-term investments keeps this pick pretty safe when it comes to writing the checks.

Dividends have been paid at Merck since 1935, and last year the payout was increased about 10%, from 38 cents a quarter to 42 cents. You might not find massive share appreciation in this stock, but you certainly will find stability.

Merck reports July 27.

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#2: Verizon

Verizon Communications (NYSE:VZ)Current Dividend Yield: 4.3%
Performance So Far in 2012:

Verizon (NYSE:VZ[37]) has been labeled a sleepy telecom stock, but not in recent months. Shares recently popped to a new 52-week high thanks to the demand for yield on Wall Street.

Big-picture, Verizon is one of the most secure plays out there. It remains the leading wireless telecom provider in the U.S. by subscriptions and gets 50% of its revenue from wireless subscribers. 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 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. Like many low-risk dividend stocks, this is a double-edged sword because there might not be any huge growth opportunities for the entrenched telecom. But strong cash flow generation and the lack of any real competition from anyone other than AT&T (NYSE:T[38]) means this telecom stock is a stalwart that’s here to stay.

The telecom giant recently made waves with a decision to kill almost all voice plans and move to a “Share Everything” data model[39] that will allow users to get up to 10 gadgets wired — including laptops, tablets and smartphones — on the same plan. The goal is to get more folks hooked up with more gadgets and using more data (which VZ can charge more for, of course). Recent earnings[40] showed very strong wireless results that are encouraging, even if “old” landline connections disappointed a bit.

And if this mobile move doesn’t move the stock in the long term? Well, you could do worse than a 4.3% annual return via dividends.

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#1: AT&T

AT&T T[41]Current Dividend Yield: 5%
Performance So Far in 2012:

One of the biggest stories in 2011, as previously mentioned, was that AT&T (NYSE:T[38]) tried to leapfrog rival Verizon (NYSE:VZ[37]) in the wireless market via a buyout of T-Mobile. But regulators ran interference, and AT&T abandoned its bid[42]. 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%, this Dependable Dividend Stock[31] is a heck of an income play.

The story is the same for AT&T as Verizon, where a strong balance sheet and its entrenched status are offset by the lack of growth and the highly regulated nature of the telecom sector (case in point: the squashed T-Mobile bid). AT&T delivered pretty strong first-quarter earnings[43], though, so it’s not like this company is completely stagnant.

Admittedly, these U.S. telecoms aren’t “growthy” and won’t deliver massive share appreciation. But if you’re looking for a big dividend payer that will keep throwing off cash for decades, AT&T might be your best bet in the whole Dow Jones Industrial Average.

AT&T reports earnings July 24.

Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[44] Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.

  1. Spanish bond yields:
  2. calls for policy action:
  3. Compare Brokers:
  4. CVX:
  5. oil stock earnings:
  6. GE:
  7. Warren Buffett’s favorite dividend stocks:
  8. BRK.A:
  9. BRK.B:
  10. a special dividend from GE Capital:
  11. General Electric earnings in February:
  12. fiscal first-quarter earnings:
  13. JPM:
  14. JPM trading loss:
  15. shaved $4 billion off of earnings:
  16. Volcker Rule:
  17. raise its dividend in March:
  18. C:
  19. BAC:
  20. JPMorgan has a cold — not pneumonia:
  21. DD:
  22. it added another 2 cents to its quarterly payday:
  23. PG:
  24. 10 dividend stocks left behind in 2012:
  25. P&G earnings:
  26. Procter & Gamble CEO Bob McDonald:
  27. CL:
  28. JNJ:
  29. Q2 earnings:
  30. a new Johnson & Johnson CEO at the helm:
  31. Dependable Dividend Stock:
  32. PFE:
  33. best returns in the entire Dow Jones:
  34. has $29 billion in cash:
  35. MRK:
  36. A new osteoporosis drug looks very promising for the drugmaker:
  37. VZ:
  38. T:
  39. kill almost all voice plans and move to a “Share Everything” data model:
  40. Recent earnings:
  41. [Image]:
  42. AT&T abandoned its bid:
  43. strong first-quarter earnings:
  44. “The Frugal Investor’s Guide to Finding Great Stocks.”:

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