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Top 10 Dow Dividend Stocks for February

Enjoy some reliable income with these venerable blue chips

By Kyle Woodley, InvestorPlace Managing Editor

Could 2013 have started with any more of a bang?

The Dow Jones Industrial Average and the S&P 500 Index just posted their best January performances since the mid-1990s. The Dow is above 14,000 for the first time since 2007. And the Wilshire 5000 — a broad index consisting of 6,700 stocks representing U.S. markets — is sitting at a new all-time high just above the 16,000 mark.

Naturally, many of us are starting to wonder when the other shoe will drop.

InvestorPlace editor Jeff Reeves points out a number of trends pointing to at least a short-term stumble, including heavy inside selling, frothy valuations and the technically overbought status of stocks across the board. There’s also the less-than-promising data on the U.S. jobs front, not to mention that nagging reminder about what happened the last time the markets reached these levels.

However, investors in it for the long haul can rest a little easier by making sure they have at least some exposure to rock-solid, income-producing blue chips. While they might not necessarily soar when the market goes bananas, they’re also more apt to maintain their value when the crap hits the fan. Best of all, through all that turbulence, they make sure you get yours — in the form of steady, substantial dividend payments.

If you’re looking for this kind of security, a great place to start is the veritable who’s who of American blue chips, the Dow Jones, and its top 10 dividend payers. Here’s a look at each:

#10: Johnson & Johnson

Johnson & Johnson (NYSE:JNJ)Current Dividend Yield: 3.2%
Performance So Far in 2013: +8% (vs. 6% for the S&P 500)

Johnson & Johnson (NYSE:JNJ) — the pharma/consumer hybrid behind brands like Band-Aid, Tylenol and Johnson’s baby products — hasn’t exactly been a growth machine in the past few years. Still, it’s one of this list’s best returners so far in 2013, with its 8% gains topping both the S&P 500 and Dow Jones.

JNJ put Alex Gorsky at the helm last year to revive a company suffering from quality control problems, recalls and other issues contributing to years of slow returns. So far, so good on that front — Johnson & Johnson has eased off on shooting itself in the foot.

The most recent quarter was something of a mixed bag. Q4 earnings of $1.19 per share topped estimates, but that came on slightly disappointing revenues of $17.6 billion. Also discouraging was a fiscal 2013 earnings estimate of $5.35 to $5.45, which was 4 cents below consensus forecasts. Apparently it wasn’t too discouraging, though — after an initial dip, JNJ is up 3% since that Jan. 22 report.

Johnson & Johnson’s pipeline has been looking good, too. In the past few months, JNJ has received FDA approvals for several treatments, including Xarelto (deep vein thrombosis/pulmonary embolism) and Sirturo (drug-resistant tuberculosis).

Those should help to keep Johnson & Johnson’s longstanding dividend healthy and growing. The Dependable Dividend Stock has increased its payout every year for over half a century, which includes roughly 12% in annual improvements in the past decade. JNJ goes ex-dividend Feb. 22, so there’s still time to get in to receive its March 12 payout and, if history is any indication, we should be getting an announcement sometime in April about yet another hike to its dividend.

#9: McDonald’s

McDonald's NYSE:MCDCurrent Dividend Yield: 3.23%
Performance So Far in 2013: +8%

Lately, it’s hard to get a bead on fast-food behemoth McDonald’s (NYSE:MCD).

On the one hand, the term “same-store sales” has become a reason to cringe when mentioning McDonald’s. The company suffered a 1.8% decline globally in October, which included a huge drop-off in American same-store sales that led to ouster of its U.S. operations president. And while MCD did see a nice global rebound in November, it followed that up with flat same-store sales in December and a surprisingly big decline in Janaury.

On the other hand, McDonald’s still came through when it reported Q4 earnings late last month, beating estimates by announcing that profits had grown roughly 5% to $1.38 per share on slightly improved revenues of $1.4 billion.

On the … er … third hand, MCD also warned that it expected sales to be slower in the first quarter of 2013 and anticipated the January decline that was confirmed earlier this month.

And yet, 8% gains so far in 2013.

Maybe it’s on hopes that Fish McBites and a revived push for its Dollar Menu will help right the ship — or maybe investors simply couldn’t resist McDonald’s 1-2 punch of value and security. MCD shares started the year 10% cheaper than 2012’s highs, and they yield well more than 3% after a 7-cent increase to the dividend in late 2012. Plus, that payout has been growing every year since 1976, when McDonald’s first started issuing dividends.

MCD goes ex-dividend Feb. 27 for its March 15 payout.

#8: Microsoft

Microsoft NASDAQ:MSFTCurrent Dividend Yield: 3.3%
Performance So Far in 2013: +4%

Microsoft (NASDAQ:MSFT) certainly has been busy. In the past year, it launched both the newest edition of its operating system, Windows 8, as well as the Surface line of tablets. It’s gotten into the dealmaking game, as well, providing $2 billion to help finance a buyout of troubled PC maker Dell (NASDAQ:DELL).

Unfortunately, all of those moves have been accompanied by widespread doubt. Microsoft says it has sold more than 60 million Windows 8 licenses in 90 days, putting it on par with Windows 7 — however, that number doesn’t necessarily tell us how many copies are actually being used. Plus the OS just went up in price (from $40 to $120) beginning this month, which could hinder sales.

The Surface has been the subject of lukewarm reviews and, while Microsoft doesn’t actually release Surface sales, a UBS analyst said 2012’s numbers were disappointing. Even CEO Steve Ballmer called its performance “modest.” However, the Surface Pro — a beefier version more appropriate for enterprise users — might offer some hope.

And the Dell deal? It makes sense … it’s just more rescue mission than growth proposition, and doesn’t seem to do much to bolster Microsoft.

Still, Microsoft remains the king of enterprise software thanks to products like Office and Word, so it’s not going anywhere. Plus, we can second-guess all we want, but Microsoft had to address the mobile market (and has done so), and helping Dell isn’t going to put too big a dent in its huge cash piles.

No, those cash piles will remain well-stocked, helping power a thick 3.3% dividend that just got bumped up to 23 cents quarterly as of the last payment. You also have just about a week before it goes ex-dividend on Feb. 19 leading up to its March 14 payout.

#7: General Electric

General Electric GECurrent Dividend Yield: 3.4%
Performance So Far in 2013: +7%

Yes, this is the same General Electric (NYSE:GE) that jaded investors back in 2009, during the depths of the financial crisis, by cutting its 31-cent dividend all the way back to a mere dime a share.

But it’s at least trying to make amends.

Since that cutback, GE has nearly doubled its quarterly dividend to the current 19 cents per share, with the most recent increase coming at the tail end of last year and pushing General Electric into this list. Plus, GE Capital not only got the green light for a special dividend in 2012, but also regular dividends, which should only help bolster payout growth going forward.

Things have looked good from the overall performance front, too. Shares have slightly beaten the market so far, helped in part by an upbeat fourth-quarter earnings report that saw profits and revenues both beat Wall Street’s expectations. That report also included news of growth in China and a record $210 billion backlog.

Looking forward, improvements in GE Capital, the expansion of its energy equipment business and huge cost cuts should help General Electric keep pushing forward in 2013.

#6: Pfizer

Pfizer (NYSE:PFE)Current Dividend Yield: 3.5%
Performance So Far in 2013: +8%

Big Pharma and dividend investors have been close allies for some time, so it’s no surprise that Pfizer (NYSE:PFE) and its juicy yield are loved by the income crowd.

Pfizer managed to beat out the broader market in 2012, and it’s on pace to do the same in 2013 despite a number of setbacks. Back in August, PFE and Johnson & Johnson (NYSE:JNJ) shut the door on studies of IV-delivered bapineuzumab as an Alzheimer’s treatment, and Lipitor sales have been sliding ever since it went off-patent, welcoming generic competition. Also, in news of the bizarre, Pfizer had to report the theft of $750,000 worth of gold dust at a Chesterfield, Mo., lab.

Still, there’s been some good news thrown into the mix, too. Pfizer recently spun off its animal health division, Zoetis (NYSE:ZTS), in a $2 billion-plus IPO, which should allow the company to focus on its core pharma business. Last fall, the company got a big leukemia drug approval. And while Lipitor sales continued to weigh on corporate results, PFE’s fourth-quarter revenue decline to $15.07 billion still beat analyst estimates, as did earnings, which fell to 47 cents per share.

Going forward, you’ll want to be in healthcare. Drugs are a necessity and don’t play to the whims of a poor economy. Not to mention, healthcare stocks will look even more attractive as America’s baby boomer population ages and requires more treatment. In the meantime, PFE’s dividend — which just got bigger by another 2 cents quarterly a couple weeks ago — will keep your wallet healthy.

#5: DuPont

Dupont (NYSE:DD)Current Dividend Yield: 3.6%
Performance So Far in 2013: +6%

At least on the share-price front, things have been looking a little rosier for E.I. du Pont de Nemours & Co. (NYSE:DD) — or just DuPont — since the last time we looked at it. DuPont has gained nearly 8% since mid-December, and is solidly in the black for 2013.

Still, the chemicals giant isn’t without a few issues right now.

Dow’s fourth-quarter profits, while still better than hoped for, plunged 70% on revenues that were flat from the year ago. Really weighing on results was a 54% decline in Performance Chemicals profits thanks to lower prices in the paint pigment titanium dioxide. CEO Ellen Kullman also told CNBC that “2013 is setting up to be a cautious year.”

But don’t get too bearish on DuPont. Alongside that cautionary remark, we received a better-than-expected 2013 EPS forecast of $3.85 to $4.05, which should come on revenues of $36 billion — on target with Wall Street expectations. Shares also should get a boost from a $1 billion repurchase plan starting this year. Not to mention, it’s hard not to love DD’s diverse line of offerings — products ranging from Tyvek house wrap and Lycra synthetic fabrics to Teflon protective coatings and Pioneer seeds and other agricultural options. (Though, as we said before, DuPont could really use some sort of cyclical boom.)

And then there’s DuPont’s attractive dividend, which currently yields 3.6%, and which could be returning to regular growth — last year, DD hiked its dividend for the first time since the financial crisis. If you want to get into DuPont’s next dividend, you’ll have to act fast — DD goes ex-dividend Feb. 13 for its March 14 payout.

#4: Merck

Merck & Co. (NYSE:MRK)Current Dividend Yield: 4.2%
Performance So Far in 2013:

Merck (NYSE:MRK), just like Pfizer (NYSE:PFE) is a Big Pharma play that delivers in a big dividend way.

But, just like Pfizer, it has had its share of hurdles to overcome.

Merck’s $5 billion asthma drug Singulair went off-patent last year, and that was followed up by approvals for numerous pharmaceutical companies to sell generic forms of the drug. MRK also took a dive a couple weeks ago after announced it was delaying its push for the FDA approval of its osteoporosis drug odanacatib. The company also was cautious with its 2013 profit outlook, saying it expects revenue to be in line with 2012.

On the plus side, Merck’s in the midst of an aggressive grab at the Alzheimer’s treatment market with MK-8931, a BACE inhibitor, which it started putting through mid-stage trials in December. It also received FDA approval for an over-the-counter version of Oxytrol, which treats overactive bladders in women.

In its most recent quarter, Merck enjoyed strong sales of the diabetes drug Januvia and cervical cancer vaccine Gardasil, which helped keep Q4 revenue and earnings declines in check. The company reported 83 cents per share on $11.7 billion, beating expectations for 81 cents per share and $11.49 billion, respectively.

Merck’s 2009 buyout of Schering-Plough has kept and will continue to keep product line rolling, and a huge war chest of almost $15 billion in cash and short-term investment will keep powering its dividend — bumped up from 42 cents to 43 cents quarterly late last year for a current yield of more than 4%.

#3: Intel

Intel INTCCurrent Dividend Yield: 4.3%
Performance So Far in 2013: +2%

Intel (NASDAQ:INTC) has rocketed up this list in the past year, but not necessarily for the best reasons. While it has increased distributions (most recently, from 21 cents to 23 cents last summer), its yield also soared as a result of its share price dropping 20% in the past year.

But while Intel faces a number of questions about its ability to grow in a post-PC world … it might not necessarily need to grow all that much (if at all) to be useful to long-term investors.

After all, despite being in Big Tech, its dividend is decidedly Big Tobacco, to hear Charles Sizemore talk about it. And so are several aspects of its business. Its industry is in decline, but it still has an enormous share of that market at 16%, trumping the No. 2 and No. 3 players combined. It has a conservative balance sheet. Not to mention, it also has a fantastic valuation of less than 10 times earnings — something you actually can’t say for tobacco stocks right now.

Intel’s not necessarily dead in the water, either. Its place inside Microsoft’s Surface tablet at least gives it some shot of making ripples in the mobile space, and there’s even talk it might become bedfellows with Apple (NASDAQ:AAPL) — be it for iPhone processors, or maybe even as a partner in making a smartwatch.

But even if it is, INTC still yields north of 4%, boasts a decent track record of growth — its dividend has improved 40% in just two years — and has room to grow further as it pays out just 37% of its earnings in dividends.

#2: Verizon

Verizon Communications (NYSE:VZ)Current Dividend Yield: 4.6%
Performance So Far in 2013: 

Of course, if Intel is like a tobacco stock, Verizon (NYSE:VZ) and rival AT&T (NYSE:T) are like utilities.

Verizon is the leading wireless telecom provider in the U.S. by subscriptions and gets 50% of its revenue from wireless subscribers. Plus, it’s also a top-tier high-speed Internet provider — an ever-important role as the country continues to hurtle through the digital revolution. And that absolute necessity for wireless service — and its huge market share amid a dearth of competitors – means a very stable revenue stream that helps fund its big, fat dividend.

It was that fat dividend that helped propel Verizon through most of 2012, as income was all the rage. While VZ’s 7%-plus gains last year don’t sound that grand, it’s icing on the cake for a stock traditionally expected to reward investors on the dividend, not through rip-roaring share appreciation.

A big source of downward pressure for Verizon is that the country is more or less at wireless saturation, meaning VZ is in a hotly contested battle to both retain its current customers and wrest contracts from its competitors. And of course, even gaining those subscribers can result in a big hit thanks to big subsidies on smartphones, which happened to Verizon in Q4. Thanks to huge iPhone sales, VZ recorded profits of just 45 cents per share that came in a nickel short of estimates.

Still, that’s because 2.1 million monthly contract users signed on, which is a long-term good for VZ. Plus, the company also has its FiOS TV business, as well Redbox Instant, a streaming video service it just launched with its partner, Coinstar (NASDAQ:CSTR).

Meanwhile, the headliner act — its dividend — has grown 20% in five years and yields well north of 4%.

#1: AT&T

AT&T TCurrent Dividend Yield: 5.1%
Performance So Far in 2013:

At this point, we might as well just etch AT&T’s (NYSE:T) name in stone, because it doesn’t look like it’ll move from atop this list anytime soon.

AT&T’s story is the same as Verizon’s (NYSE:VZ): It’s a big ol’ pseudo-utility with a rock-solid balance sheet and stable user base … but one with admittedly limited means of growth in a regulated industry. It’s so big that the Department of Justice knocked down a bid to buy T-Mobile … which then went out and bought up regional carrier MetroPCS (NYSE:PCS).

So for now, it remains No. 2 in American wireless market share, but No. 1 in dividend investors’ hearts. This Dependable Dividend Stock not only has tickled income investors with a substantial 5%-plus dividend, but also has marched out to a nearly 5% share return so far in 2013.

Its fourth-quarter story was similar to Verizon’s. While it gained fewer customers (780,000 contract customers to Verizon’s 2.1 million), it did sell more smartphones, which of course weighed on earnings thanks to heavy subsidies. AT&T still took a $3.8 billion net loss, but adjusted earnings improved 10% to 44 cents per share, which fell just under analyst estimates. Both AT&T and Verizon are benefiting from newer shared-data plans, and like Verizon and FiOS, AT&T is still gaining traction with its U-verse Internet TV service.

Slow and steady wins the race — at least as long as the movement is slowly and steadily ahead. AT&T still is lumbering in the right direction, which means good things for anyone sitting in its stock.

Kyle Woodley is the Deputy Managing Editor of As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @IPKyleWoodley.

Article printed from InvestorPlace Media,

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