Pay attention, income investors, because dividend stocks just might be the best game in town.
Strong, reliable dividend stocks have room in just about everybody’s portfolio as far as I’m concerned. Especially today, with 10-year Treasuries yielding a measly 2.1% — less than the average rate of inflation.
Although Federal Reserve Chairwoman Janet Yellen recently indicated an interest rate hike was coming “sometime this year,” it could be as late as September or October, and it probably won’t be large.
Thankfully, investors have a magical tool known as the stock market at their disposal.
Not only do solid dividend stocks give investors an income stream, but the underlying stock can also appreciate considerably over time. So who needs Treasuries?
Each of these top 10 Dow dividend stocks for June yields at least 3% annually … and in some cases, quite a bit more than that.
Top 10 Dow Dividend Stocks #10: Merck & Co., Inc. (MRK)
Merck & Co., Inc. (NYSE:MRK) has been one of the more solid dividend stocks in the Dow Jones for a while now. And if Merck can keep up the type of performance we saw in its blowout first-quarter earnings report, it’ll keep making this list for years to come.
InvestorPlace‘s own Ethan Roberts touched on Merck’s strong quarter and the market’s exuberant reaction to it:
“MRK stock rose 5% after reporting first quarter adjusted earnings of 85 cents a share, easily surpassing analysts’ estimates of 75 cents a share. Revenue for the New Jersey-based drug manufacturer was $9.4 billion, also ahead of forecasts for $9 billion.
Merck’s two biggest drugs, Januvia and Janumet, led MRK’s prescription drug sales of $8.3 billion. Merck’s vaccines and HIV drug Isentress also showed strong sales.”
Between a price-to-earnings ratio of just above 15, not to mention a 3% dividend yield, MRK stock offers investors both value and a nice income stream.
Top 10 Dow Dividend Stocks #9: The Coca-Cola Co (KO)
The Coca-Cola Co (NYSE:KO) hasn’t been anything to write home about recently; shares are pretty much breakeven over the last year, and with North American soda sales in a secular multiyear decline, Coca-Cola faces a rocky road ahead.
Figuring out how to address the ever-evolving taste buds of the global palette is no small task, and by no means does Coca-Cola have a clear answer.
That said, KO still has broad exposure to more promising beverage categories like water, energy drinks and juices. Its partnerships (and minority interests in) Monster Beverage Corp (NASDAQ:MNST) and Keurig Green Mountain Inc (NASDAQ:GMCR) should help Coca-Cola diversify a bit to ease the company’s crippling reliance on soda.
But what’s even more impressive is that Coca-Cola is one of a handful of companies that has been paying dividends for 100 years or more.
If that doesn’t make KO one of the top dividend stocks on Wall Street — or at least the Dow Jones — I’m not sure what does.
Top 10 Dow Dividend Stocks #8: Caterpillar Inc. (CAT)
Dividend Yield: 3.3%
YTD Performance: -6%
Global machinery giant Caterpillar Inc. (NYSE:CAT) hasn’t exactly been wowing investors this year. In fact, it hasn’t been wowing anyone for at least five years. Over the past half-decade, CAT stock has underperformed the S&P 500 by about 50 percentage points.
Actually, this sort of thing isn’t too unusual. Caterpillar is a cyclical stock, and as the company said when announcing its full-year 2014 results, lower energy prices are a “significant headwind” for its energy, transportation and construction businesses in oil-dependent economies across the globe. It went on:
“In addition, with lower prices for copper, coal and iron ore, we’ve reduced our expectations for sales of mining equipment. We’ve also lowered our expectations for construction equipment sales in China.”
That’s a daunting list of headwinds to overcome, but those risks have helped send shares lower … and in turn, Caterpillar has quietly become one helluva Dow dividend stock based on sheer yield.
If you’re of the contrarian mindset, CAT stock is undoubtedly well-positioned to benefit from a resurgent commodities market.
Top 10 Dow Dividend Stocks #7: Pfizer Inc. (PFE)
Dividend Yield: 3.3%
YTD Performance: +10%
Personally speaking, I think most of the truly revolutionary innovations on the horizon will occur in just two sectors: technology and healthcare. Pfizer Inc. (NYSE:PFE), the third-largest public healthcare company in the world, is at the forefront of the latter. And because Pfizer has the expertise, resources and willingness to explore new problems in medicine going forward, I’m optimistic about PFE stock in the long-term.
Of course, the “patent cliff,” which is happening now, is a significant roadblock for Pfizer in the near term. The patent cliff refers to a relatively concentrated period of time when many major blockbuster drugs will go off patent, freeing up generic competitors to eat away market share with lower-cost alternatives.
Celebrex, Pfizer’s fourth-best selling product, goes off patent Dec. 2 of this year. It’ll be tough to replace the $3 billion in revenue that generates.
While I’d keep an eye on how PFE fares in the wake of Celebrex’s fall from grace, Pfizer stock’s 3.3% yield is quite healthy and in no imminent danger of being cut.
Top 10 Dow Dividend Stocks #6: Procter & Gamble Co (PG)
Dividend Yield: 3.3%
YTD Performance: -13%
Like many other companies on this list, Procter & Gamble Co (NYSE:PG) would love to see the dollar pull back just a touch after a fierce rally that has left the greenback at multiyear highs against many of the world’s major currencies.
When that pullback will occur … no one knows. What we do know is that when we look back at Procter & Gamble’s corporate history, we find that it is simply and plainly one of the best dividend stocks of all time.
P&G’s dividend is powered by the stable income provided from selling daily essentials like Bounty paper towels, Pampers diapers, Tide laundry detergent and Crest toothpaste.
Like several others on today’s list, P&G deserves to be in the income investor’s hall of fame: It’s one of the exceptionally few dividend stocks that has been cutting investors checks for 100 years or more.
Into dividend growth? PG stock is, too. It has increased its payout for the last 58 years.
Top 10 Dow Dividend Stocks #5: General Electric Company (GE)
Dividend Yield: 3.4%
YTD Performance: +9%
General Electric Company (NYSE:GE) is slimming down — quickly. And that’s a good thing. Investors should cheer the conglomerate’s move to go back to basics, which makes sense considering its financial arm, GE Capital, nearly brought the company to its knees in the wake of the financial crisis.
In April, GE announced it was essentially getting out of the banking business entirely. The slimming of General Electric would reap investors huge dividends.
Initially expected to sell $90 billion of GE Capital’s financial portfolio by the end of 2017, CEO Jeff Immelt now expects to sell $100 billion by the end of 2016. The iconic company expects to receive about $35 billion in dividends from GE Capital and finance $50 billion in share buybacks as a result of the sale.
If its 3.4% yield wasn’t already enough, perhaps a cash infusion of that magnitude will remind investors why GE has regained its place among the best blue-chip dividend stocks in the stock market today.
Top 10 Dow Dividend Stocks #4: Exxon Mobil Corporation (XOM)
The 133-year streak trails only tool-maker Stanley Black & Decker, Inc. (NYSE:SWK), which has been drilling shareholders with cash since 1877 — a 138-year streak.
XOM has also raised its dividend payout for 32 consecutive years, a streak that should only get longer. Some analysts even think the company could be looking to make a material M&A play sometime soon. Oppenheimer, noting that Exxon is the only company in its peer group with a AAA credit rating, suspects XOM will make use of that strength sometime soon, saying:
“We believe ExxonMobil will likely capitalize on its competitive advantage by making a large strategic acquisition in the current oil downturn.”
But won’t that mean less money to go around in the form of dividends? Don’t sweat it, Oppenheimer says:
“The recent dividend increase and $1B expected share repurchase in 2Q15 underscores ExxonMobil confidence and reassures its shareholders that it is different and a cut above the rest.”
There you have it.
Top 10 Dow Dividend Stocks #3: McDonald’s Corporation (MCD)
Dividend Yield: 3.5%
YTD Performance: +3%
McDonald’s Corporation (NYSE:MCD) is at an interesting point in its corporate life.
After an acute, multi-year deceleration in samestore sales under his watch, former CEO Don Thompson announced his retirement in January. Taking the helm was branding and marketing pro Steve Easterbrook, whose first day on the job was March 1.
Easterbrook already had experience as a C-level exec with McDonald’s, and his skill set seems like exactly what McDonald’s needs going forward. From the press release announcing Thompson’s retirement and Easterbrook’s promotion:
“Prior to this promotion, Easterbrook was Senior Executive Vice President and Chief Brand Officer, leading McDonald’s efforts to elevate its marketing, advance menu innovation, and create an infrastructure for its digital initiatives.”
He’s already trying to get things moving again, outlining a turnaround plan aimed at, among other things, making Mickey D’s feel more like a modern, progressive burger chain.
We’ll see how that goes, but with 38 consecutive years of dividend growth, MCD remains one of the top dividend stocks in the stock market today.
Top 10 Dow Dividend Stocks #2: Chevron Corporation (CVX)
Dividend Yield: 4.1%
YTD performance: -8%
Chevron Corporation (NYSE:CVX) stock has struggled in the wake of sharply lower oil prices, and I don’t expect CVX stock to do much until a legitimate commodity rally is underway.
Oppenheimer doesn’t even expect Chevron to be cash-flow neutral at $70 per barrel for Brent, which is 12% higher than Brent oil prices today. Says Oppenheimer:
“We estimate Chevron could face a free cash flow deficit of $13.6B this year and $8.9B next year, before asset sales, which could be funded with additional debt.”
Those estimates include the assumption that CVX will be paying about $8 billion in dividends each year, because … well, that payout just isn’t going away. Chevron isn’t dumb enough to alienate shareholders by cutting the dividend after 29 straight years of increasing payouts.
Plus, CVX won’t be behind the eight ball for long, and CEO John Watson expects oil prices to recover in 2016.
Top 10 Dow Dividend Stocks #1: Verizon Communications Inc. (VZ)
Dividend Yield: 4.4%
YTD Performance: +6%
Yet again holding down the top spot in this month’s Dow dividend stocks breakdown, Verizon Communications Inc. (NYSE:VZ) and its 4.4% annual dividend edged out Chevron’s 4.2% payout.
Of course, the biggest news concerning Verizon in the last month was the $4.4 billion deal for AOL, Inc. (NYSE:AOL). VZ clearly is trying to beef up its online presence, and dabble more seriously in self-generated content. AOL also owns digital media mainstays like the Huffington Post, TechCrunch and Engadget, as well as valuable properties like MapQuest and Moviefone, among others.
The M&A activity probably won’t move the needle too much for Verizon stock, but with shareholders already getting a hefty quarterly check, it doesn’t have to.
As of this writing, John Divine did not hold a position in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.