Top 11 Dow Dividend Stocks for September


Dividend185The Dow Jones Industrial Average is getting a long-overdue facelift.

Starting Monday, Sept. 23, the DJIA will bring in Nike (NKE), Visa (V) and Goldman Sachs (GS), which will take the place of Bank of America (BAC), Hewlett-Packard (HPQ) and Alcoa (AA).

It’s big news, but one thing’s for sure — income investors sure won’t notice.

The largest yield of the group is HPQ (at 2.6%), which is headed out the door, while the best incoming yield is NKE at 1.3%.

No, the best blue-chip dividend mainstays of the Dow Jones are sticking around, providing the kind of security that comes from deeply established and entrenched companies who write large dividend checks on a regular basis.

This month, we’re taking a look at the 11 best Dow Jones dividend stocks, all of which yield at least 3%. Here’s a look:

#11: Johnson & Johnson

Johnson & Johnson (NYSE:JNJ)YTD Stock Performance: +24% vs. +18% for the S&P 500
Dividend Yield: 3%
Sector: Healthcare

Johnson & Johnson (JNJ) is back on track in 2013 thanks to a renewed focus on quality under Alex Gorsky, the CEO who took over in 2012 after a rocky tenure by William Weldon that led to a host of recalls and a lack of confidence in the company in the wake of the Great Recession.

After bouncing around between $60 and $70 per share since 2005 (barring a brief dip to $50 amid the spring 2009 lows), JNJ has finally broken out to new all-time highs in 2013.

So where will J&J go from here? Well, the company reported strong results and raised its guidance for the year … but unfortunately, the Johnson & Johnson quality-control curse might be back with a recent recall of infant Motrin that has weighed on the share price in the past few weeks.

As long as JNJ can manage to move past this incident, however, the stock could continue to be a strong dividend play, as well as a recession-proof investment that will hang tough in the second half.

#10: Procter & Gamble

Procter & Gamble (NYSE:PG)YTD Stock Performance: +14%
Dividend Yield: 3.1%
Sector: Consumer Staples

Procter & Gamble (PG) has mildly underperformed the broader stock market in 2013, and bearish sentiment has been pretty prevalent after activist investor Bill Ackman dumped a majority of shares in August. PG stock is off about 5% in just a few weeks as a result.

But long-term investors should look beyond the day-to-day gyrations in share price and remember that Procter & Gamble has a bulletproof lineup of consumer products that include Duracell batteries, Gillette razors, Head & Shoulders shampoo and Pampers diapers among other goods.

If you’re worried about a consumer downturn in the second half, PG stock is a great take to place shelter since staples will remain in demand even if discretionary spending rolls back.

Throw in the fact that the stock yields more than 3% and has paid dividends since 1891, and you’ve got a recipe for a buy-and-hold gem.

#9: DuPont

Dupont (NYSE:DD)YTD Stock Performance: +28%
Dividend Yield: 3.1%
Sector: Chemicals

DuPont (DD) has had a nice year in 2013, but it hasn’t been all gumdrops and rainbows. DuPont, like a lot of Dow components, has been soft since the beginning of August thanks to recent earnings declines and a sluggish global economic outlook.

Still, it’s hard to bet against DuPont as a long-term play. The company has a five-year growth rate of over 15% in its revenue, and has paid dividends since 1904. And what with a diverse line of chemicals spanning agriculture, electronics and biosciences this company isn’t overly dependent on any one sector to find success.

There’s always risk of a pull-back should industrial customers turtle up amid economic headwinds, but the roughly $5 billion in annual operating cash flow and a dividend payout ratio of less than 50% of FY2013 earnings mean that this company (and its dividends) aren’t going anywhere.

#8: McDonald’s

McDonald's NYSE:MCDYTD Stock Performance: +9%
Dividend Yield: 3.2%
Sector: Consumer Discretionary

McDonald’s (MCD) has been under pressure in 2013 thanks to both soft consumer spending at home and trouble abroad, particularly in Europe where consumers have been battered and in China where the company has banked on growth that isn’t as brisk as hoped. In July, MCD missed earnings thanks to these global troubles.

But underperformance notwithstanding, McDonald’s has a lot to offer investors right now — including a nice 3.2% dividend and a strong history of increases. Consider that in 2003, it paid just 40 cents annually in dividends, but in 2013 is on track to pay $3.08 — an increase of more than eightfold.

The company is rethinking its dollar menu and looking to change the recent history of earnings trouble, so investors might want to consider a bargain buy in MCD.

#7: General Electric

General Electric GEYTD Stock Performance: +11%
Dividend Yield: 3.2%
Sector: Industrial conglomerate

General Electric (GE) has a bad name among dividend investors because of its big crises-era cut to distributions. Namely, GE dividends went from 31 cents to 10 cents for a 68% reduction in 2009. It also doesn’t help that even five years removed from the bankruptcy of Lehman Brothers and the subsequent market meltdown, GE stock still is off about 40% from its 2007 highs.

But while the damage hasn’t been reversed for long-time shareholders, new money might  find a bright future in GE now that its dividend is back on the mend. At 19 cents a share, it’s up to a 3.2% yield. And it’s important to note that this spring the embattled

GE Capital division is paying $6.5 billion in dividends, too.

GE faces headwinds, of course, what with a weak macro picture weighing on its all-important infrastructure segment, and the fallout from Fukushima damaging its nuclear energy biz. But stable aerospace business and continued growth in healthcare makes this diversified industrial a decent bet for the long haul.

#6: Chevron

Chevron Corp. (NYSE:CVX)YTD Stock Performance: +13%
Dividend Yield: 3.2%
Sector: Energy

Though second to Exxon Mobil (XOM) in size, Chevron (CVX) is hardly a small fish in the energy space with some $39 billion in operating cash flow annually, a $235 billion market cap and a history of dividends that spans over 100 years.

This mega-cap energy company has underperformed in 2013 in large part because of the slowdown in China, which has created a rather tough road for commodity stocks across the energy and materials space. But don’t think for a second this means that Chevron is in trouble — or that its dividend is in question, since dividend payouts represent less than a third of total earnings per share.

You could do worse over the long haul than this stable energy company, since it will remain dominant in the oil space and will keep paying a plump dividend for decades to come. And eventually when the global economy turns around, CVX will see a nice run-up as a result of increased oil demand

#5: Pfizer

Pfizer (NYSE:PFE)YTD Stock Performance: +13%
Dividend Yield: 3.4%
Sector: Pharmaceuticals

In case you missed it amid all the talk about Obamacare and patent expirations, big pharma standout Pfizer (PFE) has tacked on 50% gains in the last five years to outperform the S&P handily.

Part of that is because of big efficiencies and a pop to the product pipeline after the 2009 acquisition of rival Wyeth for a jaw-dropping $68 billion. But it’s also thanks to an aggressive rethinking of the company structure via layoffs, marketing and research that puts an emphasis on the future.

Consider that this year Pfizer took the unusual step of selling erectile dysfunction drug Viagra directly to consumers via the Internet as an effort to get in front of drug counterfeiters! This clearly is a company thinking about its future.

And with a nice dividend and a recession-proof business model (consumers will cut out just about anything before they stop taking their pills), investors can be confident investing in Pfizer for the long haul.

#4: Merck

Merck & Co. (NYSE:MRK)YTD Stock Performance: +16%
Dividend Yield: 3.6%
Sector: Pharmaceuticals

Another pharmaceutical stock worth watching is Merck (MRK). This stock has a good long-term track record, both in regards to share performance and in regards to dividends; the stock has mildly outperformed the broader market since the Great Recession and has dished out dividends in some form since 1935.

And like Pfizer, this pick is very stable even in tough economic times because healthcare is one expense that remains robust even if consumers feel the pain.

There are issues with generic competition and patent expirations at Merck, of course, including multibillion-dollar cardiovascular drugs like losing their patent protection in this year.

But considering the big acquisitions lately, including the 2009 mega-merger with Schering-Plough and the more low-key buyouts of biotech firms Inspire Pharma and SmartCells, Merck is hardly just standing still.

#3: Intel

Intel INTCYTD Stock Performance: +11%
Dividend Yield: 4%
Sector: Semiconductors

Intel (INTC) isn’t the sexiest pick right now in a post-PC age, since the lion’s share of its business still comes from the semiconductors used in laptop and desktop computers. However, with a whopping 4% dividend that is less than half of its current earnings and a backstop of $4.7 billion in annual cash flow, it’s not like INTC is disappearing anytime soon.

What’s more, Intel continues to innovate with big R&D spends on new projects such as an ambitious mobile chip push and an even more interesting foray into the television space with a set-top TV box that might stream shows directly into your home over the Internet.

And if these projects don’t pan out? Well, a lot of negativity has been priced in and the 4% dividend is a great fallback for long-term investors.

#2: Verizon

Verizon Communications (NYSE:VZ)YTD Stock Performance: +6%
Dividend Yield: 4.6%
Sector: Telecommunications

Verizon (VZ) recently made big headlines with news that it would buy out the remaining stake of Verizon Wireless from European telecom Vodafone (VOD). Shares have taken a pounding as a result, in part because the big-ticket deal is going to deploy capital that could be spent in other ways that include upgrading the network or delivering bigger dividends to shareholders.

But that said, it’s not like Verizon is on the brink or that it is somehow in a cash crunch. VZ boasted $5.7 billion in cash and investments in its last earnings report, and dividends were projected to take up about 66% of fiscal 2014 earnings before the Vodafone buyout and its change to the balance sheet.

There are few things that are certain on Wall Street, but the virtual duopoly of Verizon and AT&T (T) are pretty darn close to guaranteed. Considering the need for connectivity for workers and consumers alike, Verizon is perhaps one of the most solid bets a long-term investor can make in 2013.

#1: AT&T

YTD Stock Performance: Flat
Dividend Yield: 5.3%
Sector: Telecommunications

AT&T (T) has hardly had a great year. In addition to underperforming the market dramatically, it’s also sitting on a loss while some of the other laggards in the Dow have simply posted smaller profits.

What gives? After all, the telecom giant tacked on as much as 25% during a big run last year despite regulators squashing AT&T’s $39 billion buyout of T-Mobile from Deutsche Telecom (DTEGY) … why would things be worse in 2013 than in 2012?

Well, it all boils down to top-line challenges and the problem of growth in a nearly saturated U.S. wireless market coupled with the declining landline business that AT&T was built on.

The good news for long-term shareholders, however, is that a storied history of dividends and high yield means that AT&T could be the best long-term dividend play of the bunch. It might never burn down the house with dramatic share price appreciation, but at over 5% annually in dividends and the prospect of higher payouts given the 44% increase in quarterly payouts over the last decade, AT&T is a slow-and-steady lock for any portfolio.

Jeff Reeves is the editor of and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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