It’s hard out there for income investors.
10-year Treasuries are yielding just 1.9%, the dividend yield on the S&P 500 is also stuck right around 2%, and investors are mired in a constant will-they-or-won’t-they with the Federal Reserve.
Interest rates look like they’ll finally edge higher this year, but the Fed’s general dovishness means any rate hikes will probably be fairly insubstantial.
Luckily, there are still plenty of solid blue-chip dividend stocks out there. They’re a little riskier than pure fixed-income investments, sure, but they’re also a lot likelier to appreciate over the next five years or so, which won’t be true for bonds if rates finally advance.
With that said, today we’ll look at the top 10 dividend stocks in the Dow Jones Industrial Average — a set of blue chips that each yields more than 3% currently:
Top Dow Dividend Stocks #10: Procter & Gamble Co (PG)
Dividend Yield: 3.1%
YTD Performance: -10%
There’s little argument that consumer goods giant Procter & Gamble Co (NYSE:PG) is struggling in the face of currency headwinds: About two-thirds of revenues come from overseas, and the stronger dollar helped knock fiscal second-quarter earnings down 31% year-over-year.
But on the upside, PG stock trades at lower valuations than peers like Colgate-Palmolive Company (NYSE:CL) and Clorox Co (NYSE:CLX), while also rewarding investors with a higher dividend yield.
Let’s be honest, PG isn’t a terribly exciting stock. It’s a blue chip with origins in the first half of the 19th century. But if the U.S. dollar reverses its gains anytime soon, PG stock could be an absolute steal.
Investors seem to be catching on to that possibility, with P&G making it all the way to the Elite Eight in this year’s Stock Market Madness tournament.
Top Dow Dividend Stocks #9: Intel Corporation (INTC)
Dividend Yield: 3.2%
YTD Performance: -19%
Although it’s hard to argue against the favorable dividend, Intel Corporation (NASDAQ:INTC), unlike many of the stocks on this list, doesn’t have a lengthy record of dividend growth. Plus, its underlying business concerns me: I recently took a look at three stocks to sell in an era of slumping PC sales, and my first nominee was INTC:
“Intel’s processors are found in about 85% of PCs, with Advanced Micro Devices, Inc. (NYSE:AMD) being the only other chip-maker holding meaningful market share. That’s some heavy exposure to a market in what looks to be a perpetual decline.”
That significant exposure is showing up in the financials. INTC cut its first-quarter revenue outlook by about $1 billion because of slower PC sales and currency headwinds, and analysts expect revenue to fall this year.
Top Dow Dividend Stocks #8: Exxon Mobil Corporation (XOM)
Dividend Yield: 3.3%
YTD Performance: -9.4%
Exxon Mobil Corporation (NYSE:XOM) stock boasts a 32-year streak of dividend increases, and despite the oil supply glut, XOM stock has only slipped 10% in the last year. InvestorPlace writer Charles Sizemore recently took a closer look at Exxon’s dividend:
“Its dividend yield is the highest it’s been in decades, yet its dividend payout ratio is still very modest 36%.
I realize that the dividend payout ratio will probably spike up in the coming quarters as Exxon’s earnings slow due to the rout in crude oil prices. But coming from such low levels, investors have a wide margin of safety here. And XOM has a long history of maintaining and even raising its dividend under very difficult conditions in the energy markets.”
Trading at just 11 times earnings, XOM is one of the more attractive large-cap stocks out there today.
Top Dow Dividend Stocks #7: Pfizer Inc. (PFE)
Dividend Yield: 3.3%
YTD Performance: +11%
Although Pfizer Inc. (NYSE:PFE) is one of the biggest companies in the world at a market capitalization of $210 billion, PFE keeps its nose to the ground in the never-ending sniff fest colloquially known as the search for the next blockbuster drug.
One of Pfizer’s more recent successes was the approval of its breast cancer treatment Ibrance, which occurred two months ahead of schedule. Investors are hoping the drug can also serve as a remedy for PFE’s revenue problems, which began appearing in recent years as the “patent cliff” caused highly successful drugs to come off patent.
Specifically, Lipitor, which was generating $12 billion per year, came off patent in 2011; in the last five years, revenues have fallen from around $65 billion a year to under $50 billion annually.
With Pfizer also slashing its R&D spending, PFE stock pays a fine dividend … but isn’t particularly positioned to rally anytime soon.
Top Dow Dividend Stocks #6: The Coca-Cola Co (KO)
Dividend Yield: 3.3%
YTD Performance: -5%
Although The Coca-Cola Co (NYSE:KO) got knocked off in the second round of our Stock Market Madness tournament by the ubiquitous coffee chain Starbucks Corporation (NASDAQ:SBUX), few companies (outside of P&G) boast a record of dividend growth quite like KO stock, which has increased its payout annually without interruption for the last 52 years.
Put differently, Coca-Cola’s dividend growth streak stretches back to the time of the Kennedy administration.
As InvestorPlace Contributor Will Emerson recently put it, Coca-Cola “is a little like your heart or pancreas. You don’t consider it particularly exciting or sexy, but you know it’s always there, performing.”
Or, in the case of its most recent quarter, outperforming. Folks have been declaring KO stock a mediocre investment since the ’80s. And folks have been consistently and decidedly wrong.
Top Dow Dividend Stocks #5: Caterpillar Inc. (CAT)
Dividend Yield: 3.5%
YTD Performance: -13%
It’s no secret that Caterpillar Inc. (NYSE:CAT) stock has been struggling recently. The strong U.S. dollar has done horrible things to its business as overseas earnings were diluted by the unfavorable exchange rate. All in all, converting foreign earnings into dollars cost Caterpillar $481 million last year.
The stronger dollar has also put pressure on commodities prices, which Caterpillar would prefer to see rising since many of its customers are miners.
But enough with all the gloom and doom.
CAT stock pays a fine 3.5% dividend, and the company has boosted the quarterly payout in each of the past five years. It’s also taking important steps in an effort to improve its customer experience, investing in the Chicago startup Uptake, a data analytics company that should provide valuable insights into data gleaned in the use of its machinery.
Top Dow Dividend Stocks #4: McDonald’s Corporation (MCD)
Dividend Yield: 3.5%
YTD Performance: +3%
McDonald’s Corporation (NYSE:MCD) faces a similar problem to Caterpillar, with overseas earnings in the crosshairs as the era of the strong dollar slogs on. But McDonald’s also is facing problems domestically; North American same-store sales have been in decline for years.
That said, MCD is taking efforts to change its image, vowing to stop using antibiotics in its chicken products and beginning to offer low-fat milk on its menu.
While its 38 consecutive years of dividend growth and a built-in stability unlike many other names on Wall Street are attractive traits, MCD has a number of unattractive flaws as well, including a new CEO, skeptical franchisees and tax issues.
Top Dow Dividend Stocks #3: General Electric Company (GE)
Dividend Yield: 3.7%
YTD Performance: -2%
Although General Electric Company (NYSE:GE) didn’t make it through the first round of InvestorPlace‘s 2015 Stock Market Madness tournament, GE doesn’t need to curry the favor of readers to earn its spot as an elite Dow dividend stock.
After having to slash its dividend amid the 2008-09 financial crisis as a result of GE Capital, the iconic conglomerate re-emerged as a leaner, meaner company; it de-risked, ridding itself of toxic investments. It learned the hard way to narrow its focus.
Also, GE is intelligently moving into the business of the Smart Home, trying to get a first-mover advantage by sending 20,000 Wi-Fi modules to select GE refrigerator owners in an effort to make their fridges smarter overnight.
As for its dividend, GE has more than doubled it since emerging from the financial crisis — and while its 23-cent quarterly payout still is well shy of the 31 cents it paid before cutting its dividend, that’s still good for a 3.7% yield.
Top Dow Dividend Stocks #2: Chevron Corporation (CVX)
Dividend Yield: 4.1%
YTD Performance: -7%
If you own shares of Chevron Corporation (NYSE:CVX) stock, the last year has probably been somewhat nerve-racking, what with the precipitous, 50% drop in oil prices and all.
With no end in sight to the global supply glut, CVX isn’t exactly Wall Street’s favorite stock right now.
That said, despite the oversupply of oil and steep price decline, CVX stock is only off 20% in the last year — bad, but certainly not as bad as many of its smaller competitors. Plus, Chevron’s big dividend has at least helped to soften some of the losses.
And contrarian investors should be frothing at the mouth for CVX stock, which has proven its resilience in the toughest energy market since the Great Recession.
As an integrated oil and gas player with refinery operations that tend to offset underperformance in its upstream business, CVX stock is as solid a play as there is in the energy sector. And as far as dividend stocks go, 29 consecutive years of increasing its payout makes Chevron as rock-solid as they come.
Top Dow Dividend Stocks #1: Verizon Communications Inc. (VZ)
Dividend Yield: 4.5%
YTD Performance: +4%
For many moons, telecom giant AT&T Inc. (NYSE:T) reigned supreme as the Dow’s top dividend-paying stock (it currently yields 5.7%). But with Apple Inc (NASDAQ:AAPL) transitioning into the Dow 30 on March 19, AT&T got booted. Now its biggest rival, Verizon Communications Inc. (NYSE:VZ) is the top dog.
Tough month.
VZ stock is a perennial dividend heavyweight in its own right, and I happen to believe it’s one of the top five cheap dividend stocks in the market. As I explained in a bullish call on Verizon several weeks ago:
“(Verizon) has grown its dividend for eight straight years. It’s also staying on top of growth markets with huge potential like the Internet of Things, which VZ CFO Fran Shammo thinks will offer greater avenues for growth than the never-ending pursuit of net subscriber additions.
Even as Verizon takes a firm stance in the telecom price wars, refusing to limbo with the likes of T-Mobile US Inc (NYSE:TMUS) and Sprint Corp (NYSE:S), only 1.1% of customers left VZ last quarter. At a forward P/E of 13 and plenty of room to increase its payouts further, VZ remains one of the most undervalued dividend stocks to buy in the whole market.”
Boasting what is perhaps the best network in the nation, it’s tough not to like VZ stock.
As of this writing, John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
