In light of the events in Ukraine and Gaza, the fact that the major averages are trading higher shows that, despite the ugly nature of these highly fluid scenarios, neither situation poses a serious threat to the global economy. With more than 700 companies set to report earnings in the next two weeks and the likelihood of more merger activity also prevalent, any downside move in equities will, in my view, be well contained.
When China reaffirmed its second-quarter GDP growth rate at 7.5% last week, it was another big positive — the second-largest economy in the world enjoyed an uptick in domestic growth. Europe’s economy is more intertwined with that of Russia’s and thus could see some pressure if there is no constructive break in the tumultuous set of developments out of Ukraine.
While it is still unknown exactly how much risk these measures bring to bear for equity markets, earnings are looking up and interest rates remain low — and the outlook for stocks remains favorable.
However, as the world turns, there is a feeling for those who follow news outside the United States that a lot can go either right or wrong in a hurry. Uncertainty breeds comfort in what you know, and knowing that an income stream can be relied on in a broadly diversified portfolio really helps smooth out any volatility that unknown elements can bring to one’s investments.
For investors seeking income during these uncertain times, look no further than the 10 highest-yielding stocks in the Dow Jones Industrial Average. These blue-chip names pay out sizable yields ranging from 2.93% to 5.18%, and all of them stand to benefit from the market’s appetite for income. (Note: All yields and returns are as of July 30.)
Top Dividend Stock #10: Cisco (CSCO)
- Dividend Yield: 2.99%
- YTD Performance: 14.27%
- 52-Week Return: 0.53%
Cisco Systems (CSCO) has been rallying all year and, after gaining more than 3% this month, the stock has fallen two places on our list for July. The company started paying a dividend of just $0.06 in 2011, which has since grown by more than 200% to $0.19 per share.
At current levels, the stock yields just under 3%, but the 41.1% payout ratio suggests further dividend hikes could be possible. In addition to returning cash to shareholders through its distributions, Cisco has also repurchased roughly $8 billion of its shares so far in 2014.
The stock is only about 2.7% off of its recent 52-week highs, but even at those levels, CSCO is a great value compared to the rest of the tech sector and trades with a price to earnings ratio of 17.2 vs. the industry average of 28.9. The stock shot higher when it reported its last quarterly earnings back in May — in order to repeat that performance, the company will have to beat expectations again when it announces its second-quarter results on Aug. 13.
Top Dividend Stock #9: Merck (MRK)
- Dividend Yield: 3.07%
- YTD Performance: 16.04%
- 52-Week Return: 19.78%
Merck (MRK) has been one of the best-performing stocks of the year and leads our Top Dow Dividend Stocks in terms of capital appreciation. The shares have regained almost all of the losses incurred in May and now sit roughly 4% below their 52-week highs.
At current levels, MRK seems somewhat overvalued, as it trades with a P/E ratio of 38 versus the industry average of 18.9. Still, the stock has received a few price-target increases and upgrades from analysts that have helped to validate the share price.
Earlier this month, Barclays raised its target for the stock to $61 from $50, while analysts at Leerink Swann boosted their target to $60 from $57, representing potential upside of 4.9% and 3.2%, respectively. Additionally, Bank of Americareiterated a “buy” on the stock with a $62 price target.
While its valuation is stretched, MRK’s annual distribution of $1.76 per share provides some insulation against a possible pullback. The stock goes ex-dividend on Sept. 11, and investors on record as of Sept. 15 can expect to receive the quarterly dividend of $0.44 on Oct. 7.
Top Dividend Stock #8: Coca-Cola (KO)
- Dividend Yield: 3.08%
- YTD Performance: -4.09%
- 52-Week Return: -2.51%
After climbing to a new 52-week high at the end of June, Coca-Cola (KO) stock has pulled back since mixed earnings results were release last week. The good news was that earnings per share came in at $0.64 versus expectations for a reading of $0.63, global volume grew 3% and book value was up 4% during the quarter.
However, revenue was slightly lower than analysts were hoping for at $12.6 billion against estimates of $12.85 billion, and investors sent the stock lower in reaction. For dividend investors, the pullback could make for a good buying opportunity.
KO also reported free cash flow of $2.82 billion and maintains a payout ratio of 58.7%, which should allow the company to continue to increase its dividend as it has for the last 51 years. The stock goes ex-dividend on Sept. 11, and the $0.305 distribution will be paid out on Oct. 1.
Top Dividend Stock #7: Chevron (CVX)
- Dividend Yield: 3.26%
- YTD Performance: 6.10%
- 52-Week Return: 3.90%
This time last month, Chevron (CVX) was making new all-time highs at the $133.50 level and, just last week, the stock registered another record high of $135.10. The shares are now up 6% for the year and 1.5% in the past month.
Earlier this month, CVX released its interim update for the second quarter, in which the company stated that “earnings for the second quarter 2014 are expected to be higher than first quarter 2014 as a result of gains on asset sales and an absence of impairments in the prior quarter.”
The stock saw some selling pressure for a few days after the release, but began to rebound as a number of analysts upped their targets for CVX above the $140 level. Escalating tensions in the Middle East and the resulting rise in crude oil prices also acted as positive catalysts for the stock.
When compared against its biggest rival, Exxon Mobil (XOM), CVX looks like a more attractive holding at the moment. Even with CVX trading near all-time highs, the stock is cheaper. Its price/earnings ratio sits at 12.7 versus XOM’s 13.6 reading. And, for dividend investors, CVX’s $4.28 annual payout represents a yield of 3.26%, whereas XOM yields barely more than a 10-Year Treasury note at current levels.
Top Dividend Stock #6: Procter & Gamble (PG)
- Dividend Yield: 3.31%
- YTD Performance: -3.99%
- 52-Week Return: -2.77%
Procter & Gamble (PG) is one of just two companies in the Dow Jones that has paid a dividend for over 100 years and, after increasing that dividend for 58 years straight, the stock yields a very decent 3.31%. PG operates in the consumer staples space and sells its products — ranging from deodorants to razor blades to diapers — in over 180 countries, which explains why it has survived as a company for so long.
The stock is down about 4% so far this year as investors take notice that growth is slowing. To counteract that trend, however, the company is in the process of cutting costs by over $10 billion through 2016.
The effects of those savings may be reflected in this week’s earnings announcement, which is scheduled for Aug. 1. Analysts are expecting earnings of $0.91 per share on revenue of $20.6 billion for the quarter, compared to EPS $0.79 and revenue of $20.7 billion a year earlier.
PG has either matched or beat estimates over the last four quarters, but, even if the company disappoints the Street, long-term investors should feel comfortable knowing they will be collecting an annual payout of $2.57 per share by owning the stock.
Top Dividend Stock #5: McDonald’s (MCD)
- Dividend Yield: 3.40%
- YTD Performance: -1.11%
- 52-Week Return: -2.12%
McDonald’s (MCD) has jumped higher by two spots on our list for July as the stock continues to fall from its brief stay above the $100 level. MCD is now down almost 5% in the last month after reporting its quarterly numbers, but its yield has risen to a respectable 3.4% — up from 3.2% last month.
Last week, MCD announced results for the latest quarter and disappointed investors once again. Earnings per share came in at $1.40 on sales of $7.2 billion versus expectations for readings of $1.44 and $7.3 billion, respectively. Same-store sales in the U.S. fell by 2.5%, marking the third declining quarter in a row.
While those numbers were discouraging, long-term income investors should be pleased to know that the company plans to boost the amount of cash it returns to shareholders by up to 20% to $20 billion via buybacks and dividends. Historically, MCD has increased its distribution once a year, which it will likely do again after paying the last iteration of its current $0.81 quarterly dividend in early September.
Top Dividend Stock #4: General Electric (GE)
- Dividend Yield: 3.47%
- YTD Performance: -8.53%
- 52-Week Return: 4.02%
General Electric (GE), the diversified industrial conglomerate, has severely lagged the broader market in 2014 and is now off 8.53% year to date. In mid-July, the company reported second-quarter earnings that met expectations, and the $0.39 earnings per share reading represented an increase of almost 20% over the prior quarter. Revenues increased 3.4% for the quarter to $36.2 billion, coming in just shy of estimates for $36.3 billion.
In an effort to simplify its business and return to its industrial and manufacturing roots, GE also announced that it plans to spin off its North American retail finance business, Synchrony Financial, which starts trading publicly today.
Additionally, the company reached an agreement to acquire the power and grid businesses of France-based Alstom, which GE stated will “be accretive to earnings in 2015, and add $0.06 to $0.09 per share in 2016.” The move is part of GE’s stated goal to generate “75% of earnings from its Industrial business by 2016.”
The dip in the shares and ambitious plans for the future of the company may present an attractive buying opportunity for long-term investors. The stock paid its most recent distribution of $0.22 per share last week, representing a dividend yield of 3.47% at current levels. The next payout will likely fall in mid-December, at which time GE could announce another distribution increase, as it has for the past three years in a row.
Top Dividend Stock #3: Pfizer (PFE)
- Dividend Yield: 3.59%
- YTD Performance: -4.47%
- 52-Week Return: 0.37%
Pfizer (PFE) hasn’t done much this year and is currently down about 4.5% year to date after dropping 1.4% over the past month. After beginning the month to the upside, shares fell back down below the $30 level after the company lost exclusivity rights for its erectile dysfunction (ED) drug, Viagra, in China.
China represents a $10 billion market for ED drugs, and Viagra made up almost 60% of those sales in 2013. The stock is also still feeling the effects from losing another one of its blockbuster drugs, Lipitor, and from its failed takeover bid of AstraZeneca (AZN).
However, the company is taking steps to combat this string of negative events. Earlier this month, PFE announced that it had entered into an agreement to acquire InnoPharma — a private company that focuses on sterile injectables — for $225 million in cash and up to $135 million of contingent milestone payments, which will boost the number of products in Pfizer’s sterile injectables portfolio to 73.
Pfizer, which had beaten earnings per share estimates by an average of 4.1% over the last four quarters, reported second-quarter earnings of $0.58 per share this week, exceeding analysts’ expectations of $0.56. At current levels, Pfizer’s dividend yield stands at 3.59%. Pfizer just went ex-dividend, so new investors will have to wait for the next payout to cash in.
Top Dividend Stock #2: Verizon (VZ)
- Dividend Yield: 4.15%
- YTD Performance: 5.33%
- 52-Week Return: 1.45%
After trading roughly flat for the first six months of the year, Verizon (VZ) has now put up a 5.33% gain year to date, with 5% of that coming within the last month. The company reported its second-quarter results last week and posted earnings per share of $0.90, a penny higher than expectations.
However, the catalyst for the recent run-up in its share price was an upbeat press release that the company put out earlier in the month. The announcement stated that VZ “delivered continued customer growth in the recently concluded quarter” and that it “also continues to see Wireless margins consistent with the last several quarters, with second-quarter 2014 Wireline margin improving compared with first-quarter 2014.” The news triggered a 1.5% gain on the day it was released, and the stock has been making new 52-week highs ever since.
VZ followed through on its bullish predictions, posting significant growth it total revenues, adjusted earnings and operating profit margins. What’s more, the stock was recently upgraded at FBR Capital from “market perform” to “outperform,” which gave it another nice pop last week.
Although Verizon trades just under its highs, the stock still carries a 4.15% dividend yield. The next payout will be $0.53 per share and is scheduled to hit accounts on Aug. 1. VZ has historically raised its dividend every four quarters and, since the upcoming payout is the fourth iteration of its $0.53 payout, so you can expect a dividend hike in the near future.
Top Dividend Stock #1: AT&T (T)
- Dividend Yield: 5.12%
- YTD Performance: 3.41%
- 52-Week Return: 2.13%
AT&T (T), the second-largest wireless provider in the United States, is up just 3.41% for the year versus a 6.58% gain for the S&P index. However, after selling off with the rest of the market earlier this year, the stock is up about 11% from its March lows.
The company reported second-quarter earnings last week that disappointed investors and sent the stock mildly lower in reaction. Earnings per share came in at $0.62, just a penny shy of expectations. Although sales rose 1.6% to $32.6 billion during the quarter, the number was lower than analyst forecasts of $33.2 billion.
On the bright side, T announced that it had added over one million new monthly wireless subscribers, which was much better than the 816,000 estimate. While net income fell to $3.5 billion from $3.8 billion the year before, profit margins in its wireless service segment expanded over the prior year.
At current levels, AT&T sports a dividend yield of 5.12%, making it the highest-yielding stock in the Dow Jones index. The company’s next payment will be for $0.46, and subscribers on record as of July 10 will be able to collect the payout on Aug. 1.
Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income, which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and 4x greater income.