After an up-and-down October that saw Ebola fears, worries about the state of the European Union and slowing Asian growth all hit the market, the stock market has rallied, and the S&P 500 and Dow Jones Industrial Average have notched record highs on several occasions.
With the current dividend yield of the S&P 500 sitting at a meager 1.86% and 10-year Treasuries sitting at just 2.25%, the stock market looks like a tempting place to invest your money. And what better place for a risk-shy income investor with a hankering for a bit of capital appreciation than the stodgy, blue-chip-heavy Dow Jones Industrial Average?
While not every stock in the Dow is a screaming yielder, you can find a lot of income on the higher end. For instance, even the worst of the top 10 dividend stocks in the Dow yields 2.8% — and once you get to the top, you’re looking at yields north of 5%!
So, here’s a closer look at the top 10 Dow dividend stocks, with yields as of Nov. 26.
Top Dow Dividend Stocks #10: Cisco Systems, Inc. (CSCO)
Dividend Yield: 2.8%
YTD Performance: +22%
Investors get the best of both worlds with Cisco Systems, Inc. (CSCO). The 2.8% dividend yield is a nice little annual stipend for income investors, while Cisco’s high-tech business gives it some exposure to volatility and — from time to time — big gains.
Sure, CSCO pays the smallest dividend of any company on today’s list. But CSCO stock also has outperformed each and every other stock on this list since the beginning of 2014.
Meanwhile, Cisco’s cash flow is also quite alluring, and is a major reason why Portfolio Grader — the stock-ranking product of Louis Navellier (editor of Blue Chip Growth and other products) — recently upgraded Cisco stock to a “B,” indicating a “buy” rating.
Top Dow Dividend Stocks #9: Procter & Gamble Co (PG)
Dividend Yield: 2.9%
YTD Performance: +9%
Unlike CSCO, Procter & Gamble Co (PG) won’t be earning you much by means of rapid capital appreciation.
Of course, if you own shares of this consumer goods powerhouse, you probably know that already.
Where PG stock can excel, though, is in the blue-chip portfolio of a low-risk income investor. P&G is incredibly committed to maintaining and growing its dividend, which it has grown annually for 57 consecutive years.
PG also is continuing to slim down its operations in an effort to focus on fewer business lines and do those better. PG isn’t so interested in batteries, it seems, as it sold its Duracell division earlier this month to Warren Buffett’s Berkshire Hathaway (BRK.B).
Top Dow Dividend Stocks #8: Exxon Mobil Corporation (XOM)
Dividend Yield: 2.9%
YTD Performance: -6%
Exxon Mobil Corporation (XOM) has moved up a couple slots since the last time we checked out the highest-paying blue-chip dividend stocks. “Great!” you might think. “Movin’ on up!”
Unfortunately, XOM’s advance in the ranks only came because while other stocks were busy rising (making their headline yields smaller), Exxon just stayed put.
It has been a tough year for Exxon and its peers in the oil and gas industry, especially since late June, when the price of crude oil began its precipitous freefall. Since peaking at over $100 a barrel on June 25, oil prices fell more than 26% in just five months.
Thankfully for XOM shareholders, Exxon also hedges its bets since it can make money when oil goes down by earning higher margins through its upstream refinery operations. Still, Exxon would rather see oil start to get more expensive; the stock is off nearly 8% from oil’s recent high back in June.
Top Dow Dividend Stocks #7: Merck & Co., Inc. (MRK)
Dividend Yield: 3%
YTD Performance: +19%
Like CSCO, Merck & Co., Inc. (MRK) has given investors the best of both worlds this year, tacking on nearly 20% while dishing out an annualized 3% payment to its shareholders on top of that.
Investors can take solace in the fact that MRK is never going anywhere, but they should also applaud the company for staying innovative and involved in current affairs and health issues.
MRK, for example, just bought the rights to the rVSV-EBOV vaccine from NewLink Genetics Corp (NLNK). Merck paid NLNK $50 million and a share of royalties for the drug, which is an experimental vaccine aimed at combating the Ebola virus.
Top Dow Dividend Stocks #6: General Electric Company (GE)
Dividend Yield: 3.3%
YTD Performance: -4%
General Electric Company (GE) isn’t the highest-yielding or most consistent dividend-payer in the Dow, but its 3.3% yield and four-year record of increases is at least promising.
The only reason GE doesn’t have a more enviable record of dividend growth is that whole pesky “Great Recession” thing.
However, InvestorPlace contributor Lawrence Meyers argues that GE stock is an all-weather dividend stock, even after the lessons of the financial crisis have been learned. Speaking of GE’s annual dividend payment (it’s currently 88 cents), Meyers reasons:
“Even at 46 cents per share, the low point in 2010, GE still paid billions of dollars to shareholders. GE stock fell 80% during that period. Yet, here it is in late 2014, back at $27, near its all-time high.”
Most importantly, General Electric has been reducing its exposure to the financial segment that crippled it during the financial crisis, most recently by spinning off Synchrony Financial (SYF) — the old GE Capital. Thus, you can have a little more faith that GE’s dividend will be more secure should we see a similar crisis emerge.
Top Dividend Stock #5: Pfizer Inc. (PFE)
Dividend Yield: 3.4%
YTD Performance: -1%
Pfizer Inc. (PFE) stock has zigged and zagged its way through the stock market this year, just like many other stocks in 2014. But what makes the movement of PFE so interesting is that many of its fluctuations have been caused by complex accounting conundrums.
I was awfully confused about PFE’s vision, writing last month that its deal to acquire AstraZeneca plc (ADR) (AZN) was probably dead in the water because the U.S. Treasury had come out publicly against “tax-inversion deals.”
Yet a week later, the Wall Street Journal reported PFE was still looking at inversions, and it seems the company hasn’t ruled them out just yet.
There’s not much of 2014 left, but the remainder of it could be really interesting for PFE shareholders. In the meanwhile, Pfizer pays a solid 3.4% in dividends.
Top Dow Dividend Stocks #4: McDonald’s Corporation (MCD)
Dividend Yield: 3.5%
YTD Performance: Flat
McDonald’s Corporation (MCD) did not surrender its No. 4 spot among the Dow’s dividend stocks.
So in short, it stayed put — just like its stock.
While the S&P 500 has gained 12% this year, MCD has been flat — so all investors really have is MCD’s thick dividend. Dan Burrows notes some of the biggest problems at Mickey D’s corporate HQ:
“A chunk of MCD’s bedrock customers are avoiding the golden arches because of stagnant wages and job insecurity. Compounding that problem is rising competition from Chipotle Mexican Grill (CMG) and other chains offering fresher, healthier menus.”
With food quality issues in China and intensifying competition for Americans’ breakfast dollars, about all MCD stock has to offer is its dividend.
Top Dow Dividend Stocks #3: Chevron Corporation (CVX)
Dividend Yield: 3.7%
YTD Performance: -7%
Give yourselves a nice pat on the back, Chevron (CVX) shareholders! A 3.7% dividend yield is pretty darn good — and higher than 90% of the other lowlife stocks in the Dow.
But don’t be too jubilant. CVX stock has done so poorly this year, it doesn’t even break even when you include that massive dividend.
If you back out what happened to CVX stock (a sharp 11% selloff) after oil prices started falling in late June, Chevron shares would be solidly in the green year-to-date. (Of course, you can’t actually do that.)
However, like Exxon, Chevron has diversified away most of the pure risk some smaller wildcatters experience when oil falls, so I don’t expect CVX’s subdued prices to last forever — but they could last for a while.
Top Dow Dividend Stocks #2: Verizon Communications Inc. (VZ)
Dividend Yield: 4.4%
YTD Performance: Flat
Nobody pays a dividend quite like the big boys in the telecom sector, and Verizon Communications Inc. (VZ) is as big as they come.
Again, you’ll notice a negative correlation between volatility and dividend yield — a correlation that tends to hold pretty nicely in established, $200 billion companies.
In other words, you can count on a lofty dividend from VZ each year, but the stock is unlikely to double anytime soon.
Back in April, Blue Chip Growth Editor Louis Navellier gave several reasons he thought VZ stock was a dud, and since the writing, VZ shares have underperformed the broader market.
That said, with seven consecutive years of dividend growth, income investors could do worse in their hunt for cash than investing in Verizon.
Top Dow Dividend Stocks #1: AT&T Inc. (T)
Dividend Yield: 5.3%
YTD Performance: Flat
At last, we reach AT&T Inc. (T), Verizon’s biggest competitor.
T stock is in a league of its own when it comes to blue-chip dividend stocks. Not only does the company far and away have the highest yield, but it has been raising that dividend yield for 29 straight years. That’s a tremendous track record, and InvestorPlace contributors have enjoyed saluting AT&T’s boring business model as an investor’s dream time and time again.
The fear with AT&T, however, is the specter of rising interest rates. Not only does T pay out over 71% of its profits in the form of a dividend, but higher interest rates could constrict AT&T’s margins if the company routinely borrows money to pay shareholders. On top of that, as interest rates inevitably rise in the coming years, income investors will shift their assets increasingly from high-yielding dividend stocks like T to safer securities like bonds and T-bills.
It’s not always a thrill being king of the hill.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid and on StockTwits at stocktwits.com/divinebizkid.