Top 10 Dow Dividend Stocks for January

by Bryan Perry | January 27, 2014 10:27 am

Stocks had a banner year in 2013, thanks in large part to virtually unlimited quantitative easing and increasingly positive economic indicator readings. But now that the Federal Reserve has begun to scale back its asset purchases, the feel-good market environment of 2013 is giving way to a more discretionary market in terms of picking winners and losers.

best-dividend-stocks[1]Investors are scrubbing the numbers closely to determine fair valuation, which means the market will elevate on fewer names going forward — not everything is going rally on the expectation that QE cures all corporate ills. As the Fed winds down its monthly bond purchases, the idea of a safety net for all equities diminishes greatly.

However, you don’t need to decipher press release after press release to find the safest, blue-chip dividend stocks with a long history of solid, dependable payouts. For steady and reliable income, Dow dividend stocks are your best bet. These are some of the best dividend stocks out there — companies can almost guarantee that their dividends will hit your account each and every pay date.

The top 10 highest-yielding Dow dividend stocks pay out sizable yields ranging from 3% to 5.5%, and they’re often less susceptible to market downtrends, which makes them ideal holdings during uncertain economic times.

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

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Dow Dividend Stocks: #10: Microsoft (MSFT)

best-dividend-stocks-msft-stock[3]Dividend Yield: 3%
YTD Performance: -1.6% (Dow -4.2%)
52-Week Return: +32% (Dow +16.3%)

Microsoft (MSFT[4]) upped its dividend to 28 cents per share back in November — an increase of 12% over the previous payout — and the 3.04% dividend yield has helped the company solidify a spot on our list of Dow dividend stocks.

MSFT stock consolidated a bit to start the new year and is now up slightly more than 1% in 2014, even after the pop it got from last week’s earnings report. MSFT reported a 14% increase in revenue to $24.5 billion and net income of $6.56 billion, or 78 cents per share, beating analyst expectations

The numbers were helped in part by sales of the company’s Surface tablets and the Xbox One gaming console. A total of 3.9 million Xbox One consoles were sold to retail stores in the quarter, and it’s notable that MSFT also shipped out 3.5 million units of their previous-generation Xbox 360 consoles. Additionally, revenue from its tablets more than doubled over the previous quarter to $893 million from $400 million.

Yes, MSFT stock gapped up last week, but you can still expect more upside surprises from MSFT. They are still on course to buy Nokia’s (NOK[5]) phone business — a move that could send the stock much higher — and don’t forget about the payouts you’ll be collecting along the way.

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Dow Dividend Stocks #9: Cisco (CSCO)

best-dividend-stocks-CSCO-stocks[6]Dividend Yield: 3.1%
YTD Performance: 
52-Week Return: +5%

Cisco Systems (CSCO[7]) has trickled down the ranks among our top Dow dividend stocks, as it now carries a yield of just slightly more than 3%.

CSCO performed fairly well in 2013, gaining about 12% on the year, but has been virtually flat since the start of January. The stock enjoyed a brief run-up mid-month after Barron’s claimed the shares could see a 20% return over the course of 2014, only to be sold off back down to the low $22 level.

The stock underperformed the rest of the tech sector during the bull market of 2013, and is still relatively cheap — with a forward P/E ratio of just 10.5 — compared to competitors Intel (INTC[8]) and Microsoft (MSFT[4]).

CSCO stock is undervalued, which may be reason enough to initiate a position, but on top of that, a trailing payout ratio of 36% indicates that there is still plenty of room for the company to increase its distribution in the future.

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Dow Dividend Stocks #8: Merck (MRK)

best-dividend-stocks-MRK-stock[9]Dividend Yield: 3.4%
YTD Performance: +3.9%
52-Week Return: +20%

Next on our list of dividend stocks is Merck (MRK[10]). The global provider of health care products and services upped its quarterly dividend to 44 cents from 43 cents back in November, and the stock has been climbing ever since. MRK stock was up 23% last year, and has so far posted a 2014 return of about 4%.

The company lost the patent protection for its leading Singulair allergy and asthma medication back in 2012, a drug that was previously bringing in approximately $5 billion a year. Unlike several other health care stocks that soared through 2013, MRK has been a late bloomer, and currently maintains a five-year annualized growth rate of just 3%.

On the bright side, the Food and Drug Administration (FDA) announced earlier this month that MRK’s new blood clot prevention drug Vorapaxar, which it will market under the brand name Zontivity, should be approved. That sent the shares soaring by 6.5% to a new 52-week high of $53.44, though they have come down a bit since then.

MRK is also in the works to market a new drug for patients suffering from melanoma, which should benefit investors greatly in the form of capital appreciation and increased dividend payments.

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Dow Dividend Stocks #7: McDonald’s (MCD)

best-dividend-stocks-MCD-stock[11]Dividend Yield: 3.4%
YTD Performance: -2.7%
52-Week Return: +2.4%

McDonald’s (MCD[12]) got off to a great start early in 2013, rising almost 15% through mid-April. But this leader among fast-food and dividend stocks started giving back those gains after several disappointing earnings reports hit the tape below Wall Street estimates.

In its latest earnings release on Jan. 23, MCD reported fourth-quarter revenues of $7.09 billion (slightly below the $7.1 billion consensus) and earnings of $1.40 per share (just above the $1.39 consensus).

While those numbers were roughly in line with expectations, MCD also reported that same-restaurant sales for December fell 3.8% in the United States — much worse than the 0.6% decline analysts had predicted.

Don’t let that scare you off, though. MCD is down a meager 2.7% in 2014, and even less since the last time it was featured on our list. On a more positive note, the $3.24 annual dividend makes for a very nice 3.4% yield. With the stock now trading just 1.5% above its 52-week low, this should be seen as an attractive opportunity to own one of the world’s most recognizable brands and dividend stocks.

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Dow Dividend Stocks #6: Chevron (CVX)

best-dividend-stocks-cvx-stock[13]Dividend Yield: 3.4%
YTD Performance: -6.9%
52-Week Return: +0.9%

A leader among energy dividend stocks, Chevron (CVX[14]) experienced its fair share of ups and downs last year, but managed to push higher during the final weeks of the year to close with a 2013 return of more than 17%.

CVX stock has had a rough start to 2014, trading lower by about 7% alongside peers ConocoPhillips (COP[15]) and Exxon Mobil (XOM[16]). Fortunately, the company increased its dividend by 10 cents to $1.00 per share last year, which translates to a legitimate 3.4% yield.

In early January, CVX forecast that its fourth-quarter profit numbers will likely miss analyst expectations in its upcoming earnings report (scheduled for Jan. 31) due to decreased oil and gas production around the world.

However, an 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 American soil. Investors can pick up CVX at about 11 times forward earnings and capture that solid quarterly dividend in early March for some additional income.

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Dow Dividend Stocks #5: Pfizer (PFE)

best-dividend-stocks-pfe-stock[17]Dividend Yield: 3.5%
YTD Performance: -1.8%
52-Week Return: +11.4%

Pfizer (PFE[18]) has traded fractionally lower so far in 2014, as investors begin to show their disillusionment about the loss of potential revenue from once-exclusive drugs that have gone generic. Its flagship Viagra pill accounted for more than $2 billion in revenue in 2012, but the patent loss (in some European countries) won’t be the end of the world for Pfizer.

PFE is one of the world’s largest pharmaceutical companies and one of the best dividend stocks out there. It produces a variety of other exclusive drugs and consumer healthcare products. Investors should also feel better knowing that PFE stock now pays a decent 3.3% yield, and that it came within five percentage points of matching the performance of the Dow Jones in 2013.

Better yet, the company recently increased its quarterly dividend from 24 cents to 26 cents, an increase of more than 8%. And if you get in before the Feb. 5 ex-div date, you’ll be able to collect that payout in early March. PFE’s 2014 growth forecast comes in at a little more than 5%, and it carries a forward P/E ratio of 12.1 making this a nice bargain for new money.

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Dow Dividend Stocks #4: General Electric

best-dividend-stocks-GE-stock[19]Dividend Yield: 3.5%
YTD Performance: -10%
52-Week Return: +13.2%

General Electric (GE[20]) has one of the best comeback stories among dividend stocks.

Many dividend investors sold off their shares of GE as it bottomed out and cut back its payout at the height of the financial crisis. But if you bought in back then, when the company reduced its quarterly dividend to just ten cents, you’re sitting on a triple-digit total return that includes $2.86 in dividend income per share.

GE met earnings estimates in its latest report, but failed to provide a rosy enough outlook to prevent some selling. The company reported net income that rose 5% to $4.2 billion, or 41 cents per share, on revenue of $40.4 billion — up 3% over the same quarter last year. Earnings per share came in at 53 cents, which was in line with analyst estimates.

On the other hand, full-year profit margins for GE’s units producing jet engines, medical devices and locomotives expanded by 66 basis points — less than the 70-basis-point goal CEO Jeffrey Immelt set in late 2012, which he reiterated last month.

GE stock is down about 8% since the news broke, giving up most of the gains it made in December, but also providing for a great entry point. GE still sports a yield of 3.5%, and should bounce back into the good graces of investors as of one of Wall Street’s best dividend stocks.

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Dow Dividend Stocks #3: Intel (INTC)

best-dividend-stocks-INTC[21]Dividend Yield: 3.7%
YTD Performance: -4.9%
52-Week Return: +17.8%

Next on our list of dividend stocks is Intel (INTC[8]). The company reported earnings earlier this month that sent investors mixed signals. INTC missed earnings per share estimates by 1 penny and provided cautious guidance regarding revenues for 2014, sending shares lower by about 6% in subsequent days.

Although the company missed on EPS estimates, revenue rose to $13.83 billion against expectations for $13.7 billion. The PC market, from which INTC generates more than 80% of its revenue, has been the subject of much conjecture by tech analysts over the last year or so.

Research firms Gartner and IDC have estimated that global PC sales decreased as much as 10% in 2013, but now it appears that the decline has started to level off. Intel CEO Brian Krzanich declared in the company’s earnings release that they had “a solid fourth quarter with signs of stabilization in the PC segment.”

While the downward trend continues, it is slowing down significantly — PC sales were down only 5.6% in the last quarter of 2013 compared to the 7.6% drop seen during the previous quarter. If you believe the PC is making a comeback, you can pick up the shares right around the current $25 level and collect a solid annual yield of 3.6%.

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Dow Dividend Stocks #2: Verizon (VZ)

best-dividend-stocks-VZ-stock[22]Dividend Yield: 4.4%
YTD Performance: -2.8%
1-Year Performance: +12%

Verizon (VZ[23]) wasn’t the best stock to own in terms of capital appreciation in 2013 (the stock was only up 14.5% for the year), but it did pay out $2.06 per share in dividend income, and it will pay an even better $2.12 in 2014. In fact, Verizon has been steadily increasing its payouts for seven consecutive years.

VZ reported fourth-quarter earnings last week and beat on earnings per share of 66 cents, net income of 5.07 billion and revenue of $31.07 billion. It also added 1.7 million net wireless connections during the quarter, accounting for wireless revenues of $21.1 billion, which were up more than 5% year over year.

VZ stock fell a bit more than 2% when the news broke, giving investors the chance to purchase the shares of this ever-growing telecom at about $48. With a PEG ratio of 1 and a forward P/E ratio of 12.2, VZ seems to be fairly-valued, so you can feel comfortable adding one of the top dividend stocks to your portfolio at current levels.

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Dow Dividend Stocks #1: AT&T (T)

best-dividend-stocks-t-stock[24]Dividend Yield: 5.5%
YTD Performance: -4.6%
1-Year Performance: +1.4%

AT&T (T[25]) stands out because, unlike some dividend stocks with above-average yields, it has great fundamentals. In fact, it’s the biggest telecommunications provider in the United States with a market cap of $178.5 billion, and lags only Verizon (VZ[23]) in terms of mobile customers.

The company upped its quarterly dividend by a penny once again for 2014, to 46 cents from 45, which makes for a current yield of 5.5%. 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.”

T stock is expected to report earnings on Jan. 28, and analysts are looking for earnings 50 cents per share. The company’s last three earnings results have been roughly in line with estimates, and this time should be no different, as T recently announced that it is set to record a fourth-quarter pretax gain of $7.6 billion related to actuarial gains and losses on its pension and postemployment benefit plans.

The switch to “mark-to-market” pension accounting, which provides a more realistic view of the company’s current financial standing, should allow pension gains to be translated into earnings more quickly. Verizon got a boost on a similar announcement last week, and you can also expect a nice bump from this leader among dividend stocks.

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  4. MSFT:
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  10. MRK:
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  12. MCD:
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  14. CVX:
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  18. PFE:
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  20. GE:
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  23. VZ:
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