Top 10 Dow Dividend Stocks for December

by Bryan Perry | December 23, 2013 12:00 pm

Stocks continue to make new all-time highs, even after it was announced on Dec. 18 that the Federal Reserve will begin to scale back its asset purchases from $85 billion to $75 billion a month starting in January.

dividends-stocks[1]As the yields on equities begin to fall due to higher valuations, choosing where to invest your money for long-term growth becomes a more complicated task. The average yield on the Dow Jones Industrials is at 2.75%, which is now less than the 2.89% yield on a 10-Year Treasury note.

However, you won’t be collecting capital gains of up to 35% per year by investing in Treasuries. For those kinds of returns, look no further than the dividend-yielding stocks of the Dow. They are your best bet for collecting steady income because they are all well-established, blue-chip names that can almost guarantee that their dividends will hit your account each and every pay date.

Even with the Dow posting a year-to-date return of 24%, there’s no need to worry — the top 10 highest-yielding Dow dividend stocks, or “Dogs of the Dow,” still pay out sizable yields ranging from 2.9% to 5.2%.

Putting your money to work for you in these high-quality names going into 2014 will not only allow you to capture those sound payouts, but you’ll be comfortable knowing that you own the best of breed stocks that will continue to appreciate over time.

Here are the top 10 Dow dividend stocks by yield for December:

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#10: Procter & Gamble (PG)

dividends-PG-stock[3]Dividend Yield: 2.9%
YTD Performance: +21%

Procter & Gamble (PG[4]), the age-old household name that produces a plethora of consumer goods, has increased its dividend payouts every year for 57 years. The stock is up more than 20% so far in 2013, which is better than several other stocks that rank higher on our list.

Whereas a run-up in price in another stock may cause its yield to fall more dramatically, PG has increased its dividend to complement the higher share price. Its current 2.9% yield is only slightly lower than the 3.2% yield it carried at the beginning of January, thanks to a bump in its payout from 56 cents to 60 cents per share.

It is concerning, however, that PG trades at a price-to-earnings multiple (P/E) slightly greater than 20, while forecasting annual organic sales growth of just 3% to 4%[5].

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#9: Microsoft (MSFT)

dividends-microsoft-stock-msft[6]Dividend Yield: 3.1%
YTD Performance: +37%

Microsoft (MSFT[7]) has made our list of top Dow dividend payers once again, and its yield has ticked up slightly since its last appearance. In late November, MSFT declared a quarterly dividend of 28 cents per share, an increase of 12% over its last payout.

The stock has traded lower by about 5% in the last two weeks, keeping its yield up at a respectable 3%. Even with the recent consolidation, MSFT is up 37% year-to-date, which beats the market by nine percentage points.

But how can that be possible with all of the bad press MSFT has received this year? PC sales are in a free-fall, the Windows Phone is virtually non-existent in the marketplace and no one seems to be excited about the new Windows 8.1 operating system.

On the other hand, the relative success of the new Xbox One gaming console should provide a nice boost in earnings in the coming quarters. And with a forward P/E of 13, you still can pick up MSFT at a valuation slightly below average, especially considering the 9% growth forecast.

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#8: Pfizer (PFE)

dividends-pfizer-stock-pfe[8]Dividend Yield: 3.4%
YTD Performance: +21%

Pfizer’s (PFE[9]) patent for its best-selling Viagra pill is set to expire, and drug-maker Teva Pharmaceuticals (TEVA[10]) has already jumped on board to sell its generic version of the drug beginning in 2017.

Viagra sales alone accounted for more than $2 billion in revenue in 2012, but the patent loss won’t be the end of the world for Pfizer. TEVA is on the hook[11] to pay PFE patent royalties until the patent expires in 2020.

Not to mention, PFE is one of the world’s largest pharmaceutical companies, and it produces a variety of other exclusive drugs and consumer healthcare products. Investors should also feel better knowing it still pays a solid 3.4% yield, and that it has nearly matched the performance of the Dow Jones in 2013.

PFE’s long-term growth forecast comes in at about 3.2% a year for the next five years or so, and it carries a forward P/E of 13 and an annual dividend of $1.04. With the stock off about 5% in the last month, this looks like a nice entry point for new money.

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#7: Cisco (CSCO)

dividends-Cisco-stock-CSCO[12]Dividend Yield: 3.2%
YTD Performance: +9%

You know technology stocks have really grown up when you start to see a few of them make the list of top dividend stocks.

Cisco Systems (CSCO[13]) has underperformed versus the major averages during the bull market of 2013, as the shares are only up by 9% year-to-date. CSCO shot higher earlier in the year after it beat earnings estimates in its third quarter[14], but investors sold off the stock after each of the two following quarterly reports.

On the bright side, that selloff has boosted the dividend for new money looking to buy in to an appealing 3.2%. CSCO now trades at a measly 11.5 times earnings, which is about a third of the industry average.

That makes CSCO a very cheap stock, and as long as the dividend checks keep on coming, investors can relax knowing they’ll be getting paid while they wait for the shares to bounce back.

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#6: Chevron (CVX)

dividends-chevron-stock-cvx[15]Dividend Yield: 3.2%
YTD Performance: +14%

It has been a bit of a rollercoaster ride for Chevron (CVX[16]) this year, as the shares have traded in a channel between $115 and $120 for the better part of the last nine months. However, with oil prices ticking back up towards $100 recently, CVX has started to stabilize.

The stock is up just 14% in 2013, lagging the Dow by about 10 percentage points. Fortunately, the company increased its dividend by 10 cents to $1 early in the year, which translates to a legitimate 3.2% yield.

Investors can add CVX to their portfolios at about 10 times forward earnings, which is on par with the rest of the energy sector, and capture that quarterly dividend for an added source of income.

Additionally, the energy revolution is underway in the U.S. thanks to the fracking phenomenon, and Chevron stands to benefit greatly from the vast amount of natural gas beneath our feet.

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#5: McDonald’s (MCD)

dividends-mcd-stock[17]Dividend Yield: 3.4%
YTD Performance: +9%

McDonald’s (MCD[18]) got off to a great start early this year, rising almost 15% through mid-April. But the fast-food behemoth started making a series of lower lows halfway through the year after two disappointing earnings reports[19] hit the tape just below Wall Street estimates.

MCD is up just 9% for the year now, and down 5% since the last time it was featured on our list. If there’s a silver lining to that poor performance, it’s that the $3.24 annual dividend makes for a very hefty 3.4% yield.

The current valuation is only slightly greater its own five-year average forward P/E[20], which makes the stock a decent bargain.

Despite Mickey D’s less-than-stellar returns for the year, the company has made up for its failings through stock buybacks and by offering investors steadily increasing payouts. All that translates to what should be seen as an attractive opportunity to own one of the world’s most recognizable brands.

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#4: Merck (MRK)

dividends-merck-stock-MRK[21]Dividend Yield: 3.6%
YTD Performance: +21%

Despite the fact that Merck (MRK[22]) lost the exclusive rights to Singulair last year, its leading allergy and asthma drug, the company’s shares are up a decent 21% year-to-date — and they’ve beaten earnings estimates every quarter along the way.

The valuation looks stretched at 14 times forward earnings, as five-year growth[23] is forecast at just 2.5%. MRK also looks a bit expensive now that it’s trading back up near the 52-week high of $50.42 it set earlier this month.

There’s no denying, however, that MRK’s dependable 3.5% dividend yield merits the company as a safe, long-term income holding, especially considering its low volatility, steady price appreciation and dividend growth over the years.

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#3: Intel (INTC)

dividends-Intel-stock-INTC[24]Dividend Yield: 3.6%
YTD Performance: +23%

Chipmaker Intel (INTC[25]) carries a solid yield of 3.6%, making it the highest-yielding tech stock on our list, and its flagship 4th generation Core Series processors can be found in PCs, Macs and tablets alike.

INTC enjoys having little competition in these areas, save for Advanced Micro Devices (AMD[26]), which has a large share [27]of the low-cost PC market. However, Intel has been fighting back with its latest, less-expensive Atom Series processors that are used in the new line of Windows 8 tablets.

Shares are up 23% year-to-date, and after factoring in its 90-cent annual dividend, INTC’s total return[28] comes to 27%. That is essentially in line with the rest of the market, and not bad at all considering the headlines earlier in the year suggesting that the death of the PC was upon us.

Intel is one of the best YTD performers we’ve featured so far, and with that generous dividend yield adding nicely to its yearly return, the company will most likely remain on our list in the coming months.

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#2: Verizon (VZ)

dividends-verizon-stock-VZ[29]Dividend Yield: 4.4%
YTD Performance: +12%

The telecom sector has definitely lagged the Dow Jones in 2013, but then again, you don’t buy a stock like Verizon (VZ[30]) for the capital appreciation — the stock is only up 11% for the year. In that time, however, you would have collected $2.06 per share in dividend income.

With a yield of 4.4%, VZ isn’t the highest-yielding stock in telecom, but it is the largest mobile provider in the United States — so you know it’s good for those quarterly payouts.

In fact, Verizon has been steadily increasing its payouts for seven consecutive years. Most recently, VZ has upped its dividend by almost 3%, to 53 cents from 51.5 cents — or $2.06 on an annual basis.

And you can expect that number to keep growing as the company continues to expand its online business. In early December, Verizon announced it would be acquiring EdgeCast[31], a privately held company specializing in online content delivery networks.

VZ posted double-digit earnings growth in its last quarterly report, and the company is showing no signs of slowing down. Forget capital gains for now — this is a relatively cheap stock that will pay you well in the long run.

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#1: AT&T (T)

dividends-ATT-t-stock[32]Dividend Yield: 5.3%
YTD Performance: +2%

AT&T’s (T[33]) stock has eliminated almost all of the gains it made since it shot to $39 earlier this year. It’s up just 1.75% — pretty much in line with telecom’s sector performance [34]in 2013.

The valuation isn’t bad, either, as the shares trade with a P/E ratio of 25, which is slightly below that of its peers. However, that 5.2% yield is significantly higher [35]than the 3.5% industry average.

The company upped its quarterly dividend by a penny once again this year, to 46 cents from 45 cents. The announcement was made in a Dec. 13 press release, in which the company’s CEO reaffirmed that “Returning value to our shareholders is one of AT&T’s top priorities.”

AT&T hasn’t given up on growth either. It recently added new European roaming plans for its network, in addition to those already available for use in Canada and Mexico, and the rumor is that the company is interested in a takeover of Europe’s largest mobile provider — Vodafone (VOD[36]).

Bryan Perry is the editor of Cash Machine[37]. He may hold some of the aforementioned securities in his Cash Machine portfolio.

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  2. Compare Brokers:
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  4. PG:
  5. of just 3% to 4%:
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  7. MSFT:
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  9. PFE:
  10. TEVA:
  11. TEVA is on the hook:
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  13. CSCO:
  14. beat earnings estimates in its third quarter:
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  16. CVX:
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  18. MCD:
  19. two disappointing earnings reports:
  20. five-year average forward P/E:
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  22. MRK:
  23. five-year growth:
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  25. INTC:
  26. AMD:
  27. which has a large share :
  28. INTC’s total return:
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  30. VZ:
  31. Verizon announced it would be acquiring EdgeCast:
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  33. T:
  34. telecom’s sector performance :
  35. significantly higher :
  36. VOD:
  37. Cash Machine:

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